It was something of a deja vu moment, when students shared with me questions from the 2018 “A” Level Economics exam:
The proposed Cross Island MRT line would run through the Central Catchment Nature Reserve. An alternative route going round the reserve’s southern edge would preserve Singapore’s natural heritage and serve a much larger number of residents. The Land Transport Authority, LTA, says that the alternative route would entail longer travelling time, higher costs, more land acquisition and possibly bigger engineering challenges.
Source: The Straits Times, accessed 24 May 2017
(a) Explain what needs to be considered when a government makes rational spending decisions about such projects. 
(b) Discuss whether the government should proceed with the proposed alternative route for the Cross Island MRT. 
You see, I used to work with LTA and I took a keen interest in Transport Economics when I was an undergraduate. Hence my familiarity with the topic.
At first glance to most students, this appeared to be a difficult question, because it was not your run-of-the-mill question, and may not appear immediately familiar.
Peel back the layers however, and this question becomes rather manageable.
But we are not writing this article today to give “the answer key”. In fact, a key motivation behind our article was our relative dissatisfaction at how unconvincing many answer keys have been in various assessment books.
In fact, the answer is actually quite close to deciding whether to buy an ice cream in our daily lives!
First, we establish the tried-and-tested methodology.
Many students have the tendency to “whack the answer” without thinking about optimising the answer. There are various reasons for this, including:
- Lack of familiarity with the question.
- Under-estimating the need to have a “big-picture” to complement in-depth answers.
The first can be mitigated by reading more (do support our articles by sharing them!) and exposing yourself to more applications of Economics theories.
The second requires planning answers before putting pen to paper, and can be helped by defining key concepts required by the question.
In this case, the key element to the question lies with “rationale spending decisons”. Put another way, what is the most “logical” approach to deciding on such matters?
The most straightforward approach would be to utilise the “Cost-Benefit Analysis“.
Some schools teach an approach known as the “Marginalist Principle“, but the idea behind both are similar:
In choosing between whether to build the Cross-Island Line across the Central Catchment Nature Reserve, the associated costs of doing so should be lower than its benefits.
And voila! We now have a framework that defines “rational spending decision” and we shall use it to analyse what should be done about the Cross Island Line’s (CRL) route.
Understanding the context.
Obviously both options are being weighed seriously and the eventual decision will not be made lightly.
The following info-graph courtesy of the Straits Times illustrates both options.
The orange line represents the shorter CRL path, cutting through the Central Catchment, and the grey line represents the longer CRL path, which will skirt around the Central Catchment.
Explicit costs to building the longer route.
At 9km long, the longer option is more than double the length compared to the direct alignment cutting under the Central Catchment.
Obviously this would add to construction costs, and every km counts. The Cross Island Line is estimated to cost an eye-watering $814M per km, and the extra length is expected to add $2B in cost!
And this extra cost does not include the cost of land acquisition necessary.
Generally land acquisition costs in such situations are not announced in the open to avoid speculations, but it stands to reasons that it will not be insignificant (duh).
There is also additional travel associated with the longer route, which results in:
- Longer travel-time (we will elaborate on that later)
- Higher travel fares (because fares are tied to distance traveled)
- Higher carbon footprint (we acknowledge to be a stretch, but longer distances will almost certainly result in this, significant or not) as an external cost of production.
Implicit costs to building the longer route.
To account for total cost, we must also consider implicit (non-tangible) cost.
For most purposes, implicit cost are what we know to be opportunity cost, which is the value of the next best alternative lost when an associated option is chosen.
In the above context, building the longer alternative route would result in longer travel time (estimated to be 4 minutes).
While it doesn’t seem a lot, that estimated time assumes non-stop travel. It seems safe to assume in fact that if the longer alternative was pursued instead, there would be additional train stations built, which would add even more travel time.
There will certainly be social costs incurred by the longer route as time spent travelling by commuters could have been spent on other activities (e.g. education, exercise, family time).
Even a conservative figure of just 5 minutes, when multiplied by the large number of consumers, will add to a significant opportunity cost associated with total time “wasted” travelling.
There is also opportunity cost for the additional money spent on skirting the Central Catchment area, which could be spent on other needs (e.g. social support, defense, education or other infrastructural projects).
Benefits to building the longer route.
The most obvious benefit to building the longer alternative route would of course be the preservation of the Central Catchment area. The Central Catchment area acts as a “green lung” for Singapore, and supplies oxygen and removes greenhouse gases.
In addition, it houses the main reservoirs (MacRitchie Reservoir, Upper Seletar Reservoir, Upper Peirce Reservoir and Lower Peirce Reservoir) and acts as water catchment for these reservoirs.
Building the Cross Island Line across the Central Catchment area is likely to have negative effects on the flora and fauna within, and of course affect its functions as a catchment area in addition to maintaining biodiversity.
Most students would have correctly identified this benefit in the exam as an external benefit of consumption, as the benefit to society is not directly borne by the consumers and producers of the train ride.
It is possible to quantify the environmental cost of building the Cross Island Line across the Central Catchment area, but this is very far beyond the scope of our article.
In addition, the soil in the Central Catchment will likely pose engineering challenges that will add to the final cost, as it is of “mixed conditions”.
Nothing illustrated this more vividly than the Nicoll Highway collapse of 2004. 4 were killed after a 30 meter large cave-in occurred while building the Circle Line.
More recently, in 2017, tunneling works for the Thomson East Coast line around the Central Catchment area caused a cave-in at Mount Pleasant, illustrating such challenges in the vicinity.
So building the alternative longer route has the added benefit of avoiding additional construction costs and risks associated with “less cooperative” water catchment soil,
However, it must be added that this benefit might be blunted by the need for significant track curvature to skirt around the Central Catchment area.
Large track curvature is known to complicate operations as the train has to reduce speed, and the contact portions (e.g. wheels and third rail) tend to experience greater stress and wear.
Money makes the world go round.
Interestingly, none of the “answer schemes” or our students, included additional revenue as a key benefit to consider.
In fact, we would go as far as to say this is an extremely important consideration as financial viability makes for long term fiscal prudence!
Should the alternative longer route be built, additional train stations may be built to service the residential areas along Lornie Road.
This additional revenue would go a long way in tipping the decision in favour of the longer route, although we would like to caution that the area is not as built-up like the mature “heartland estates”, and so the expected revenue may not be as high.
We feel that the longer route should be pursued.
To be sure, in an ideal situation, we would have the dollars and cents assigned to all possible considerations that need to be taken into account.
Unfortunately we, at least, do not have the privilege of access to the appropriate figures, less public releases, and we will have to place our trust in the government to make the best decision for society.
It is our opinion however, that the alternative longer route should be built, rather than the direct one which cuts across the Central Catchment area.
We think that the benefits would likely outweigh the costs because:
- While we didn’t attempt to estimate the benefits of preserving the Central Catchment in its current state, given the urbanised nature of Singapore, the value of keeping the forest will not be small.
- And environmental degradation is something to be avoided as much as possible – not the least because it can become a slippery slope once yet another act of environmental disregard is done.
- An important goal of public transport is to bring transport access to the masses – the longer alternative will allow stations to be built to service the residential areas along Lornie Road, and Bukit Brown in the future.
- At the same time, the additional cost of the longer alternative will be offset by increased revenue from these additional stations.
So which option do you think would be best for Singapore? Drop us a comment below to let us know!
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