Introduction:
• Economic Analysis can elucidate well-known problems of transportation by:
o Failing infrastructure
o Financially weak public transit
o Environmental Impacts of Transportation
o Motor-Vehicle accidents
o Traffic Congestion
• Calculations play important role in understanding some of these problems and in defining the categories of potential policy responses
Failing Infrastructure:
• Past 2 decades, sharp decline in percentage of GNP (gross national product)
• Total value of capital stock has declined similarly as a percentage of national product by 8%
• Affects transportation especially roads, highways, bridges, and subways
• Improving public infrastructure would have high rate of return
o Macroeconomic studies relationship between public infrastructure and productivity and micro cost and benefits
• U.S. needs to spend more on public infrastructure (has gone from $21 billion to $32)
• Pricing policies often cause infrastructure to be built to accommodate inefficient numbers and mixes of users
• Highways must meet demands during high peak driving hours
• Optimizing investment strategies and better managing the infrastructure through pricing can create measurable and large reductions in cost of providing any given level of infrastructure
• More effective amount of useful infrastructure can be substantially increased without necessarily increasing the long-run cost of investment
Financially Pressed Mass Transit:
• The U.S. in comparison to Europe does not have near the amount of traffic, but receives enormous subsidies about $13.5 billion in 1993
• This is 12 fold increase in real terms since 1970
• Half of the increase occurred during the 70’s as a source of local and state fiscal crisis
• (Mohring) public transit is subject to sharply increasing returns to service frequency.
o Demand on corridor rises, transit provider can respond in multiple way
o Maintaining the same routes with the same service frequency, allowing average cost to decline
o Increase route density and/or service frequency
• Primary justification for transit subsidies from economic theory
• Property of increasing returns to scale, limits viability of mass transit in US because population density is so low
o France, UK, Italy, and Germany occupies more than six times the area
• The subsidies appear to have encourage dramatic increases in management personnel and in union wage rates, with substantial fall in labor productivity
• Possible response: radically change the institution structure of mass transit through privatization
• Possible response: shift responsibility for providing transit subsidies to local governments
o Local taxpayers will discipline transit agencies to provide only cost- effective services
Environmental Effects of Transportation
• Effects of transportation on the environment constitute enormous subject with political profile
• Estimates of typical costs of driving an automobile in urban areas of US.
• Figures from the table represent average social costs; exclude taxes and marginal externality costs
• Estimates of air pollution cost use methods including direct assessment of health costs, statistical correlations between air pollution and mortality
o Resulting implications for aggregate costs from the pollution caused by gasoline-powered vehicles
• Global warning (due to greenhouse effect) more difficult to analyze – effects are so dependent on poorly understood relationships and economic impacts in the future
• What would happen if estimated social costs of pollution and shadow value or carbon dioxide emissions were charged to users?
o Raise average fuel tax, would leave U.S. fuel taxes well below most European levels
• These cost support two conclusions:
o People place high value on environmental impacts of motor vehicles, measured by willingness-to-pay to reduce the known health effects and adopt measures to forestall unknown devastating climate effects
o This value appears to be well below that which would indicate a willingness to reverse the longstanding shift toward high levels of automobile ownership
Motor-Vehicle Accidents
• Accounted for 42,000 deaths and 2.0 million and 5.7 million injuries in U.S. in 1993
• Leading cause of death for people 1-24
• Do not seem to stimulate the same kind of public response as some less easily measure problems
• Accident costs, while substantial are not large enough to overwhelm the other costs that people voluntarily bear when driving
• Customers are willing to put up substantial sums to improve safety (paying for antilock breaks, air bags, and other safety features)
• Government intervention:
o Widespread use of insurance reduces individual’s incentive to pay voluntarily for safety measures
o Insurance rates bear only an indirect relationship to the amount of driving, may be causing drivers to perceive what really is a variable social cost (accidents) and fixed private cost (insurance)
o Accident costs are external to individual driver, borne instead by pedestrians, bicyclists, occupants of other vehicles, public-health system at large, and financed police department
• Even in the absence of other measures: to reduce danger of accidents, charging people the social cost of accidents would lead at most to only moderate changes in overall use of motor vehicles
• Reducing overall automobile use is a very clumsy way to address problem of accidents
• Costs are far less than the value people place on automobile travel, technological, or behavioral measures to reduce accidents rates
• Increasing laws against drunk driving
o Measure affecting roads, vehicles, and drivers are effective
Traffic Congestion
• ∫Traffic congestion a problem of urban transportation where there is a solution
o Congestion pricing of highways (charges traffic)
• Studies provide ample evidence that forms of congestion pricing are technically and administratively feasible
• Policies may create real and substantial benefits, can do little to reduce the most severe congestion:
o Existence of latent demand: people currently deterred from driving at congested times and places
o “Fundamental law of traffic congestion”
• Mass transit provided with increasing returns of scale can have more perverse effect
o Equilibrium is established between full cost of travel by auto and transit
o Expanding road capacity then draws users away from mass transit, driving up average cost, until new equilibrium is made
• In this situation, implementing congestion pricing could produce a modal shift toward mass transit resulting in decrease in average full cost of travel by transit
• Urban economy is being drained by the waste inherent in traffic congestion
• Those who fear congestion pricing, tend to forget that every dollar extracted can be used to add urban services
• Qualification requires:
o Revenues be used in ways to benefit urban residents and businesses
o Danger: possibility of “capture” of the revenues by special-interest analysis
• Effects on land-use and commuting patters
o Encourage shorter work trips
o Long run promoting jobs-housing balance in land-use patterns
• Congestion pricing is a respectable policy alternative
• Widespread adoption of congestion pricing is not likely in foreseeable future
• Congestion is an inherently self-limiting phenomenon
