A probabilistic model of benefit-cost analysis for highway construction projects

Deterministic method occupies the predominant position in economic analysis. However, by using a single value to estimate the project value, deterministic method would hide the risk under it. Analysts may make incorrect judgments by looking at a value without knowing the likelihood of its occurrence and the consequences of its occurrence. A probabilistic model was developed in this study to address this problem. It was found in this study that the traffic flows on Indiana highways follow logistic distributions rather than normal distributions as generally believed. The application of the probabilistic model was illustrated through a case study. The results indicate that the net present values (NPV) of benefit and cost do not follow normal distributions. Instead, they show asymmetric patterns with large skews toward right. The probabilistic model developed in this study provides a confidence range rather than a single value for decision makers to make rational decisions