Since 1960’s theoretical evaluation methods for transport investment have been developed; such as user surplus approach, hedonic approach and regional econometric model etc. However, in the past, cost-benefit analysis was little adopted in decision-making process in transportation sectors in Japan. Recently, Ministry of Transport decided to use the cost-benefit analysis for project appraisal. This paper reviews the history of theoretical and practical cost-benefit analysis focusing on railway investment, and discusses on issues of research for the future from theoretical and practical viewpoints.

This study examined the policy change of the U.S. Department of Transportation as it abandoned the original fullliberalization open skies policy and concluded the interim agreement with Japan. The study revealed that the DOT position was heavily influenced by the U.S. airline industry. Individual firms actively participated in the policy process and the industry position was essentially developed as their majority voice. DOT, however, was not a mere agent representing the US airline industry. It clearly defined its role in ensuring the market competition. The study demonstrated the validity of pluralism and the two-level game approach in illustrating, respectively, the domestic political process and international negotiation, and highlighted the limit of realism to the international negotiation.

In Germany, there have been built several high-speed railway lines in the short time since reunification under the federal government’s support, by providing subsidies or non-interest loans. In Japan, the main high-speed railway lines have been built earlier than in Germany and connect already the economic centers in the pacific coastal belt. However, the expansion of the Shinkansen network to the three islands Kyushu, Shikoku and Hokkaido is in danger to be delayed because of the recent economic crisis that makes the finance of new high-speed railway projects difficult. Therefore, a new finance system has been introduced in order to secure the continuation of investments into the high-speed railway construction. However, the budget has been reduced for 1998, and if this process continues, a further delay in construction could be caused. Since the connection to Shinkansen lines is of vital importance also for the economic development in the regions and for the protection of the environment, an active support of the improvement of the high-speed railway network by the government is also necessary in Japan.

It is difficult to improve urban railway network even though such improvement is socially desired. The reason is that it is very costly and that there often is a conflict of interest between parties concerned, i.e., railway companies and local governments. Applying the system of vertical separation, that is, a separation of railway into rail owner and train operators, can be a solution to this problem and make possible a provision of socially necessary railway services. This study examines a framework of vertical separation of urban railway network, including some methods that enable entry of train operators and tariff determination.

In fiscal year 1997, Ministry of Construction introduced the objective evaluation system which requires the economic appraisal with the Objective Evaluation Index in determining which projects to be newly adopted. The system includes cost-benefit analysis. In June 1998, a draft of the Guideline for Evaluation of Road Investment was drawn as the basic method for cost-benefit analysis of road investment. The outline of the draft and the points left to be considered are described. The existing method of cost-benefit analysis is greatly in need of continuos consideration and improvement.