Transport economics
Encyclopedia
Transport economics is a branch of economics
that deals with the allocation of resources within the transport sector and has strong linkages with civil engineering
. Transport
economics differs from some other branches of economics in that the assumption of a spaceless, instantaneous economy
does not hold. People and goods flow over networks at certain speeds. Demands peak. Advanced ticket purchase is often induced by lower fares. The networks themselves may or may not be competitive. A single trip (the final good from the point-of-view of the consumer) may require bundling the services provided by several firms, agencies and modes.
Although transport systems follow the same supply and demand
theory as other industries, the complications of network effect
s and choices between non-similar goods (e.g. car and bus travel) make estimating the demand for transportation facilities difficult. The development of models to estimate the likely choices between the non-similar goods involved in transport decisions (discrete choice
models) led to the development of an important branch of econometrics
, and a Nobel Prize
for Daniel McFadden
.
In transport, demand
can be measured in numbers of journeys made or in total distance travelled across all journeys (e.g. passenger-kilometres for public transport
or vehicle-kilometres of travel (VKT) for private transport
). Supply
is considered to be a measure of capacity. The price
of the good (travel) is measured using the generalised cost
of travel, which includes both money
and time
expenditure.
The effect of increases in supply (capacity) are of particular interest in transport economics (see induced demand
), as the potential environmental consequences are significant (see externalities below).
Positive externalities of transport networks may include the ability to provide emergency services, increases in land
value and agglomeration benefits
. Negative externalities are wide-ranging and may include local air pollution
, noise pollution
, light pollution
, safety hazards, community severance
and congestion
. The contribution of transport systems to potentially hazardous climate change
is a significant negative externality which is difficult to evaluate quantitatively, making it difficult (but not impossible) to include in transport economics-based research and analysis.
Congestion is considered a negative externality
by economists. An externality occurs when a transaction causes costs or benefits to third party, often, although not necessarily, from the use of a public good
. For example, manufacturing or transportation cause air pollution imposing costs on others when making use of public air.
Traffic congestion
is a negative externality caused by various factors. A 2005 American study stated that there are seven root causes of congestion, and gives the following summary of their contributions: bottlenecks 40%, traffic incidents 25%, bad weather 15%, work zones 10%, poor signal timing 5%, and special events/other 5%. Within the transport economics community, congestion pricing
is considered to be an appropriate mechanism to deal with this problem (i.e. to internalise the externality) by allocating scarce roadway capacity to users. Capacity expansion is also a potential mechanism to deal with traffic congestion, but is often undesirable (particularly in urban
areas) and sometimes has questionable benefits (see induced demand
). William Vickrey
, winner of the 1996 Nobel Prize
for his work on "moral hazard
", is considered one of the fathers of congestion pricing, as he first proposed it for the New York City subway
system in 1952.
In the road transportation arena these theories were extended by Maurice Allais
, a fellow Nobel prize winner "for his pioneering contributions to the theory of markets and efficient utilization of resources", Gabriel Roth
who was instrumental in the first designs and upon whose World Bank
recommendation the first system was put in place in Singapore
. Reuben Smeed
, the deputy director of the Transport and Road Research Laboratory
was also a pioneer in this field, and his ideas were presented to the British government in what is known as the Smeed Report
.
Congestion is not limited to road
networks; the negative externality imposed by congestion is also important in busy public transport
networks as well as crowded pedestrian
areas.
Congestion pricing is an efficiency pricing
strategy that requires the users to pay more for that public good, thus increasing the welfare gain or net benefit for society. Congestion pricing is one of a number of alternative demand side (as opposed to supply side) strategies offered by economists to address congestion. Congestion pricing
was first implemented in Singapore in 1975, together with a comprehensive package of road pricing
measures, stringent car ownership rules and improvements in mass transit. Thanks to technological advances in electronic toll collection
, Singapore
upgraded its system in 1998 (see Singapore's Electronic Road Pricing
). Similar pricing schemes were implemented in Rome in 2001, as an upgrade to the manual zone control system implemented in 1998;
London
in 2003 and extended in 2007 (see London congestion charge
); Stockholm
in 2006, as seven month trial, and then on a permanent basis since August 2007 (see Stockholm congestion tax
); and since January 2008, Milan
introduced a traffic charge
scheme as a one-year trial, called Ecopass
, that exempts higher emission standard vehicles (Euro IV) and other alternative fuel vehicle
s. Later during the year the Ecopass was extended until December 31, 2009.
Even the transport economists who advocate congestion pricing have anticipated several practical limitations, concerns and controversial issues regarding the actual implementation of this policy. As summarized by Cervero: "True social-cost pricing of metropolitan travel has proven to be a theoretical ideal that so far has eluded real-world implementation. The primary obstacle is that except for professors of transportation economics and a cadre of vocal environmentalists, few people are in favor of considerably higher charges for peak-period travel. Middle-class motorists often complain they already pay too much in gasoline taxes and registration fees to drive their cars, and that to pay more during congested periods would add insult to injury. In the United States, few politicians are willing to champion the cause of congestion pricing in fear of reprisal from their constituents... Critics also argue that charging more to drive is elitist policy, pricing the poor off of roads so that the wealthy can moveabout unencumbered. It is for all these reasons that peak-periord pricing remains a pipe dream in the minds of many."
Transport economists consider road space rationing
an alternative to congestion pricing
, but road space rationing is considered more equitable, as the restrictions force all drivers to reduce auto travel, while congestion pricing restrains less those who can afford paying the congestion charge. Nevertheless, high-income users can avoid the restrictions by owning a second car. Road space rationing based on license numbers has been implemented in cities such as Athens
(1982), México City
(1989), São Paulo
(1997), Santiago, Chile
, Bogotá
, Colombia
, La Paz
(2003), Bolivia
, and San José (2005), Costa Rica
.
of peak period travel but through revenue-neutral credit-based congestion pricing
. This concept is similar to the existing system of emissions trading
of carbon credit
s, proposed by the Kyoto Protocol
to curb greenhouse emissions. Metropolitan area or city residents, or the taxpayers, will have the option to use the local government-issued mobility rights or congestion credits for themselves, or to trade or sell them to anyone willing to continue traveling by automobile beyond the personal quota. This trading system will allow direct benefits to be accrued by those users shifting to public transportation or by those reducing their peak-hour travel rather than the government.
and financing transport network maintenance, improvement and expansion are debated extensively and form part of the transport economics field.
Funding issues relate to the ways in which money is raised for the supply of transport capacity. Tax
ation and user fees
are the main methods of fund-raising. Taxation may be general (e.g. income tax
), local (e.g. sales tax
or land value tax
) or variable (e.g. fuel tax
), and user fees may be tolls
, congestion charges
or fares). The method of funding often attracts strong political and public debate.
Financing issues relate to the way in which these funds are used to pay for the supply of transport. Loans, bonds
, public-private partnerships and concessions
are all methods of financing transport investment
.
of the supply of transport capacity relates to both safety
regulation
and economic regulation
. Transport economics considers issues of the economic regulation of the supply of transport, particularly in relation to whether transport services and networks are provided by the public sector
(i.e. socially), by the private sector
(i.e. competitively) or using a mixture of both.
Transport networks and services can take on any combination of regulated/deregulated and public/private provision. For example, bus
services in the UK
outside London
are provided by both the public and private sectors in a deregulated economic environment (where no-one specifies which services are to be provided, so the provision of services is influenced by the market
), whereas bus services within London are provided by the private sector in a regulated economic environment (where the public sector specifies the services to be provided and the private sector competes for the right to supply those services - i.e. franchising
).
The regulation
of public transport is often designed to achieve some social, geographic and temporal equity as market forces might otherwise lead to services being limited to the most popular travel times along the most densely settled corridors of development. National, regional or municipal taxes are often deployed to provide a network that is socially acceptable (e.g. extending timetables through the daytime, weekend, holiday or evening periods and intensifying the mesh of routes beyond that which a lightly regulated market would probably provide).
Franchising may be used to create a supply of transport that balances the free-market supply outcome and the most socially desirable supply outcome.
, and is usually a fundamental piece of information for decision-makers, as it places a value on the net benefits (or disbenefits) of schemes and generates a ratio of benefits to costs which may be used to prioritise projects when funding is constrained.
A primary difficulty in project appraisal is the valuation of time
. Travel time savings are often cited as a key benefit of transport projects, but people in different occupations, carrying out different activities and in different social classes value time differently.
Appraising projects on the basis of their supposed reductions in travel times has come under scrutiny in recent years with the recognition that improvements in capacity generate trips that would not have been made (induced demand
), partially eroding the benefits of reduced travel times. Therefore an alternative method of appraisal is to measure changes in land value
and consumer
benefits from a transport project rather than the measuring benefits accruing to travellers themselves. However, this method of analysis is much more difficult to carry out.
Another problem is that many transport projects have impacts that cannot be expressed in monetary terms, such as impacts on, for example, local air quality, biodiversity and community severance. Whilst these impacts can be included in a detailed environmental impact assessment
, a key issue has been how to present these assessments alongside estimates of those costs and benefits that can be expressed in monetary terms. Recent developments in transport appraisal practice in some European countries have seen the application of multi-criteria decision analysis
based decision support tools. These build on existing cost-benefit analysis
and environmental impact assessment
techniques and help decision makers weigh up the monetary and non-monetary impacts of transport projects. In the UK, one such application, the New Approach to Appraisal
has become a cornerstone of UK transport appraisal.
The appraisal and evaluation of projects form stages within a broader policy making cycle that includes:
.
As a result of the transportation systems in use, but not adequately meeting the needs of those who rely on them, they tend to generate low revenue. And with minimal revenue or funding the transportation systems are forced to decrease service and increase fares, which causes those in poverty to face more inequality. Further those who live in cities with no public transportation become even more excluded from education and work. In places with no public transport a car is the only viable option and that creates unnecessary strain on the roads and environment.
Since automobile use tends to be greater than public transportation use, it also becomes the norm for people to work towards car ownership. Private car ownership has led to a large allocation of resources towards road and bridge maintenance. But underfunding of public transportation prevents everyone who needs transportation from having access to it. And those who can choose between public transportation and private transportation will choose private transportation rather than face the inconveniences of public transportation. The lack of customers willing to use public transport creates a cycle that ultimately never leads to the transportation systems making significant progress. Another reason for low private vehicle ownership among welfare recipients are the established asset limitations. In the U.S. the asset limit is $1000 per vehicle. This forces welfare recipients to purchase old and sub standard vehicles in order not to lose their welfare funding.
There are a number of ways in which public transportation could be improved and for it to become a better and more enticing option for other people who do not necessarily depend on it. Some of these include creating networks of overlapping routes even among different operators to give people more choice in where and how they want to go somewhere. The system should also function as a whole, to prevent drivers from dangerously racing along routes to increase profit. Providing incentives to use public transportation can also be beneficial, as ridership increases the transportation systems can appropriately respond by increasing the frequency along those transportation routes. Even creating bus only lanes or priority lanes at intersections could improve service and speed.
Experiments done in Africa (Uganda and Tanzania) and Srilanka on hundreds of households have shown that a bicycle can increase the income of a poor family by as much as 35%]. Transport, if analyzed for the cost-benefit analysis for rural poverty alleviation, has given one of the best returns in this regard. For example, road investments in India were a staggering 3–10 times more effective than almost all other investments and subsidies in rural economy in the decade of 1990s. What a road does at a macro level to increase transport, the bicycle supports at the micro level. Bicycle, in that sense, can be one of the best means to eradicate the poverty in poor nations.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
that deals with the allocation of resources within the transport sector and has strong linkages with civil engineering
Civil engineering
Civil engineering is a professional engineering discipline that deals with the design, construction, and maintenance of the physical and naturally built environment, including works like roads, bridges, canals, dams, and buildings...
. Transport
Transport
Transport or transportation is the movement of people, cattle, animals and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations...
economics differs from some other branches of economics in that the assumption of a spaceless, instantaneous economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
does not hold. People and goods flow over networks at certain speeds. Demands peak. Advanced ticket purchase is often induced by lower fares. The networks themselves may or may not be competitive. A single trip (the final good from the point-of-view of the consumer) may require bundling the services provided by several firms, agencies and modes.
Although transport systems follow the same supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
theory as other industries, the complications of network effect
Network effect
In economics and business, a network effect is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it.The classic example is the telephone...
s and choices between non-similar goods (e.g. car and bus travel) make estimating the demand for transportation facilities difficult. The development of models to estimate the likely choices between the non-similar goods involved in transport decisions (discrete choice
Discrete choice
In economics, discrete choice problems involve choices between two or more discrete alternatives, such as entering or not entering the labor market, or choosing between modes of transport. Such choices contrast with standard consumption models in which the quantity of each good consumed is assumed...
models) led to the development of an important branch of econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
, and a Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
for Daniel McFadden
Daniel McFadden
Daniel Little McFadden is an econometrician who shared the 2000 Nobel Memorial Prize in Economic Sciences with James Heckman ; McFadden's share of the prize was "for his development of theory and methods for analyzing discrete choice". He was the E. Morris Cox Professor of Economics at the...
.
In transport, demand
Demand (economics)
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay . The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time....
can be measured in numbers of journeys made or in total distance travelled across all journeys (e.g. passenger-kilometres for public transport
Public transport
Public transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
or vehicle-kilometres of travel (VKT) for private transport
Private transport
Private transport, as opposed to public transport, is transportation service which is not available for use by the general public. Private transport is the dominant form of transportation in most of the world. In the United States, for example, 86.2% of passenger miles traveled occur by passenger...
). Supply
Supply (economics)
In economics, supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell.In economics the...
is considered to be a measure of capacity. The price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
of the good (travel) is measured using the generalised cost
Generalised cost
In transport economics, the generalized cost is the sum of the monetary and non-monetary costs of a journey.Monetary costs might include a fare on a public transport journey, or the costs of fuel, wear and tear and any parking charge, toll or congestion charge on a car journey.Non-monetary costs...
of travel, which includes both money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
and time
Time
Time is a part of the measuring system used to sequence events, to compare the durations of events and the intervals between them, and to quantify rates of change such as the motions of objects....
expenditure.
The effect of increases in supply (capacity) are of particular interest in transport economics (see induced demand
Induced demand
Induced demand, or latent demand, is the phenomenon that after supply increases, more of a good is consumed. This is entirely consistent with the economic theory of supply and demand; however, this idea has become important in the debate over the expansion of transportation systems, and is often...
), as the potential environmental consequences are significant (see externalities below).
Externalities
In addition to providing benefits to their users, transport networks impose both positive and negative externalities on non-users. The consideration of these externalities - particularly the negative ones - is a part of transport economics.Positive externalities of transport networks may include the ability to provide emergency services, increases in land
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
value and agglomeration benefits
Economies of agglomeration
The term economies of agglomeration is used in urban economics to describe the benefits that firms obtain when locating near each other . This concept relates to the idea of economies of scale and network effects...
. Negative externalities are wide-ranging and may include local air pollution
Air pollution
Air pollution is the introduction of chemicals, particulate matter, or biological materials that cause harm or discomfort to humans or other living organisms, or cause damage to the natural environment or built environment, into the atmosphere....
, noise pollution
Noise pollution
Noise pollution is excessive, displeasing human, animal or machine-created environmental noise that disrupts the activity or balance of human or animal life...
, light pollution
Light pollution
Light pollution, also known as photopollution or luminous pollution, is excessive or obtrusive artificial light.The International Dark-Sky Association defines light pollution as:...
, safety hazards, community severance
Severance
-Entertainment:*Severance , the 2003 album of Australian melodic death metal band Daysend*Severance , the 2006 British horror film* "Severance", a song by Dead Can Dance from the 1988 album The Serpent's Egg...
and congestion
Traffic congestion
Traffic congestion is a condition on road networks that occurs as use increases, and is characterized by slower speeds, longer trip times, and increased vehicular queueing. The most common example is the physical use of roads by vehicles. When traffic demand is great enough that the interaction...
. The contribution of transport systems to potentially hazardous climate change
Climate change
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...
is a significant negative externality which is difficult to evaluate quantitatively, making it difficult (but not impossible) to include in transport economics-based research and analysis.
Congestion is considered a negative externality
Externality
In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
by economists. An externality occurs when a transaction causes costs or benefits to third party, often, although not necessarily, from the use of a public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
. For example, manufacturing or transportation cause air pollution imposing costs on others when making use of public air.
Traffic Congestion
Traffic congestion
Traffic congestion is a condition on road networks that occurs as use increases, and is characterized by slower speeds, longer trip times, and increased vehicular queueing. The most common example is the physical use of roads by vehicles. When traffic demand is great enough that the interaction...
is a negative externality caused by various factors. A 2005 American study stated that there are seven root causes of congestion, and gives the following summary of their contributions: bottlenecks 40%, traffic incidents 25%, bad weather 15%, work zones 10%, poor signal timing 5%, and special events/other 5%. Within the transport economics community, congestion pricing
Congestion pricing
Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
is considered to be an appropriate mechanism to deal with this problem (i.e. to internalise the externality) by allocating scarce roadway capacity to users. Capacity expansion is also a potential mechanism to deal with traffic congestion, but is often undesirable (particularly in urban
Urban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
areas) and sometimes has questionable benefits (see induced demand
Induced demand
Induced demand, or latent demand, is the phenomenon that after supply increases, more of a good is consumed. This is entirely consistent with the economic theory of supply and demand; however, this idea has become important in the debate over the expansion of transportation systems, and is often...
). William Vickrey
William Vickrey
William Spencer Vickrey was a Canadian professor of economics and Nobel Laureate. Vickrey was awarded the Nobel Memorial Prize in Economics with James Mirrlees for their research into the economic theory of incentives under asymmetric information...
, winner of the 1996 Nobel Prize
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
for his work on "moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
", is considered one of the fathers of congestion pricing, as he first proposed it for the New York City subway
New York City Subway
The New York City Subway is a rapid transit system owned by the City of New York and leased to the New York City Transit Authority, a subsidiary agency of the Metropolitan Transportation Authority and also known as MTA New York City Transit...
system in 1952.
In the road transportation arena these theories were extended by Maurice Allais
Maurice Allais
Maurice Félix Charles Allais was a French economist, and was the 1988 winner of the Nobel Memorial Prize in Economics "for his pioneering contributions to the theory of markets and efficient utilization of resources."...
, a fellow Nobel prize winner "for his pioneering contributions to the theory of markets and efficient utilization of resources", Gabriel Roth
Gabriel Roth
Gabriel Fernando Roth is an Agentine footballer playing for Rangers.-External links: * at Terra.com.ar * at BDFA...
who was instrumental in the first designs and upon whose World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
recommendation the first system was put in place in Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
. Reuben Smeed
Reuben Smeed
Reuben Jacob Smeed was a British statistician and transport researcher.He obtained a degree in mathematics and PhD in aeronautical engineering from Queen Mary's College before entering academia as a teacher of mathematics....
, the deputy director of the Transport and Road Research Laboratory
Transport Research Laboratory
TRL is a British transport consultancy and research organisation based at Wokingham Berkshire with approximately 500 staff. TRL is owned by the Transport Research Foundation , which is overseen by 80 sector members from the transport industry. TRL also own small UK regional offices situated in...
was also a pioneer in this field, and his ideas were presented to the British government in what is known as the Smeed Report
Smeed Report
The Smeed Report was a study into alternative methods of charging for road use, commissioned by the UK government between 1962 and 1964. The report stopped short of an unqualified recommendation for road pricing but concluded that it could work and should be considered for congested road...
.
Congestion is not limited to road
Road
A road is a thoroughfare, route, or way on land between two places, which typically has been paved or otherwise improved to allow travel by some conveyance, including a horse, cart, or motor vehicle. Roads consist of one, or sometimes two, roadways each with one or more lanes and also any...
networks; the negative externality imposed by congestion is also important in busy public transport
Public transport
Public transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
networks as well as crowded pedestrian
Pedestrian
A pedestrian is a person traveling on foot, whether walking or running. In some communities, those traveling using roller skates or skateboards are also considered to be pedestrians. In modern times, the term mostly refers to someone walking on a road or footpath, but this was not the case...
areas.
Congestion pricing
Pareto efficiency
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...
strategy that requires the users to pay more for that public good, thus increasing the welfare gain or net benefit for society. Congestion pricing is one of a number of alternative demand side (as opposed to supply side) strategies offered by economists to address congestion. Congestion pricing
Congestion pricing
Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
was first implemented in Singapore in 1975, together with a comprehensive package of road pricing
Road pricing
Road pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
measures, stringent car ownership rules and improvements in mass transit. Thanks to technological advances in electronic toll collection
Electronic toll collection
Electronic toll collection , an adaptation of military "identification friend or foe" technology, aims to eliminate the delay on toll roads by collecting tolls electronically. It is thus a technological implementation of a road pricing concept...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
upgraded its system in 1998 (see Singapore's Electronic Road Pricing
Electronic Road Pricing
The Electronic Road Pricing scheme is an electronic toll collection scheme adopted in Singapore to manage traffic by road pricing, and as a usage-based taxation mechanism to complement the purchase-based Certificate of Entitlement system...
). Similar pricing schemes were implemented in Rome in 2001, as an upgrade to the manual zone control system implemented in 1998;
London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
in 2003 and extended in 2007 (see London congestion charge
London congestion charge
The London congestion charge is a fee charged for some categories of motor vehicle to travel at certain times within the Congestion Charge Zone , a traffic area in London. The charge aims to reduce congestion, and raise investment funds for London's transport system...
); Stockholm
Stockholm
Stockholm is the capital and the largest city of Sweden and constitutes the most populated urban area in Scandinavia. Stockholm is the most populous city in Sweden, with a population of 851,155 in the municipality , 1.37 million in the urban area , and around 2.1 million in the metropolitan area...
in 2006, as seven month trial, and then on a permanent basis since August 2007 (see Stockholm congestion tax
Stockholm congestion tax
The Stockholm congestion tax , also found referred to as the Stockholm congestion charge, is a congestion pricing system implemented as a tax levied on most vehicles entering and exiting central Stockholm, Sweden...
); and since January 2008, Milan
Milan
Milan is the second-largest city in Italy and the capital city of the region of Lombardy and of the province of Milan. The city proper has a population of about 1.3 million, while its urban area, roughly coinciding with its administrative province and the bordering Province of Monza and Brianza ,...
introduced a traffic charge
Congestion pricing
Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
scheme as a one-year trial, called Ecopass
Ecopass
The Ecopass program is a traffic pollution charge implemented in Milan, Italy, as an urban toll for some motorists traveling within a designated traffic restricted zone or ZTL , corresponding to the central Cerchia dei Bastioni area and encircling around . The Ecopass was implemented as a one-year...
, that exempts higher emission standard vehicles (Euro IV) and other alternative fuel vehicle
Alternative fuel vehicle
An alternative fuel vehicle is a vehicle that runs on a fuel other than "traditional" petroleum fuels ; and also refers to any technology of powering an engine that does not involve solely petroleum...
s. Later during the year the Ecopass was extended until December 31, 2009.
Even the transport economists who advocate congestion pricing have anticipated several practical limitations, concerns and controversial issues regarding the actual implementation of this policy. As summarized by Cervero: "True social-cost pricing of metropolitan travel has proven to be a theoretical ideal that so far has eluded real-world implementation. The primary obstacle is that except for professors of transportation economics and a cadre of vocal environmentalists, few people are in favor of considerably higher charges for peak-period travel. Middle-class motorists often complain they already pay too much in gasoline taxes and registration fees to drive their cars, and that to pay more during congested periods would add insult to injury. In the United States, few politicians are willing to champion the cause of congestion pricing in fear of reprisal from their constituents... Critics also argue that charging more to drive is elitist policy, pricing the poor off of roads so that the wealthy can moveabout unencumbered. It is for all these reasons that peak-periord pricing remains a pipe dream in the minds of many."
Road space rationing
Road space rationing
Road space rationing is a travel demand management strategy aimed to reduce the negative externalities generated by peak urban travel demand in excess of available supply or road capacity, through artificially restricting demand by rationing the scarce common good road capacity, especially...
an alternative to congestion pricing
Congestion pricing
Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
, but road space rationing is considered more equitable, as the restrictions force all drivers to reduce auto travel, while congestion pricing restrains less those who can afford paying the congestion charge. Nevertheless, high-income users can avoid the restrictions by owning a second car. Road space rationing based on license numbers has been implemented in cities such as Athens
Athens
Athens , is the capital and largest city of Greece. Athens dominates the Attica region and is one of the world's oldest cities, as its recorded history spans around 3,400 years. Classical Athens was a powerful city-state...
(1982), México City
Mexico City
Mexico City is the Federal District , capital of Mexico and seat of the federal powers of the Mexican Union. It is a federal entity within Mexico which is not part of any one of the 31 Mexican states but belongs to the federation as a whole...
(1989), São Paulo
São Paulo
São Paulo is the largest city in Brazil, the largest city in the southern hemisphere and South America, and the world's seventh largest city by population. The metropolis is anchor to the São Paulo metropolitan area, ranked as the second-most populous metropolitan area in the Americas and among...
(1997), Santiago, Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
, Bogotá
Bogotá
Bogotá, Distrito Capital , from 1991 to 2000 called Santa Fé de Bogotá, is the capital, and largest city, of Colombia. It is also designated by the national constitution as the capital of the department of Cundinamarca, even though the city of Bogotá now comprises an independent Capital district...
, Colombia
Colombia
Colombia, officially the Republic of Colombia , is a unitary constitutional republic comprising thirty-two departments. The country is located in northwestern South America, bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the north by the Caribbean Sea; to the...
, La Paz
La Paz
Nuestra Señora de La Paz is the administrative capital of Bolivia, as well as the departmental capital of the La Paz Department, and the second largest city in the country after Santa Cruz de la Sierra...
(2003), Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
, and San José (2005), Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....
.
Tradable mobility credits
A more acceptable policy on automobile travel restrictions, proposed by transport economists to avoid inequality and revenue allocation issues, is to implement a rationingRationing
Rationing is the controlled distribution of scarce resources, goods, or services. Rationing controls the size of the ration, one's allotted portion of the resources being distributed on a particular day or at a particular time.- In economics :...
of peak period travel but through revenue-neutral credit-based congestion pricing
Congestion pricing
Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
. This concept is similar to the existing system of emissions trading
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
of carbon credit
Carbon credit
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent equivalent to one tonne of carbon dioxide....
s, proposed by the Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...
to curb greenhouse emissions. Metropolitan area or city residents, or the taxpayers, will have the option to use the local government-issued mobility rights or congestion credits for themselves, or to trade or sell them to anyone willing to continue traveling by automobile beyond the personal quota. This trading system will allow direct benefits to be accrued by those users shifting to public transportation or by those reducing their peak-hour travel rather than the government.
Funding & financing
Methods of fundingFunding
Funding is the act of providing resources, usually in form of money , or other values such as effort or time , for a project, a person, a business or any other private or public institutions...
and financing transport network maintenance, improvement and expansion are debated extensively and form part of the transport economics field.
Funding issues relate to the ways in which money is raised for the supply of transport capacity. Tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation and user fees
User fees
People pay user fees for the use of many public services and facilities. At the federal level in the US, there is a charge for walking to the top of the Statue of Liberty, to drive into many National parks, and to use particular services of the Library of Congress.States may charge tolls for...
are the main methods of fund-raising. Taxation may be general (e.g. income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
), local (e.g. sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
or land value tax
Land value tax
A land value tax is a levy on the unimproved value of land. It is an ad valorem tax on land that disregards the value of buildings, personal property and other improvements...
) or variable (e.g. fuel tax
Fuel tax
A fuel tax is an excise tax imposed on the sale of fuel. In most countries the fuel tax is imposed on fuels which are intended for transportation...
), and user fees may be tolls
Road pricing
Road pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
, congestion charges
Road pricing
Road pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
or fares). The method of funding often attracts strong political and public debate.
Financing issues relate to the way in which these funds are used to pay for the supply of transport. Loans, bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, public-private partnerships and concessions
Concession (contract)
A concession is a business operated under a contract or license associated with a degree of exclusivity in business within a certain geographical area. For example, sports arenas or public parks may have concession stands. Many department stores contain numerous concessions operated by other...
are all methods of financing transport investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
.
Regulation & competition
RegulationRegulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
of the supply of transport capacity relates to both safety
Safety
Safety is the state of being "safe" , the condition of being protected against physical, social, spiritual, financial, political, emotional, occupational, psychological, educational or other types or consequences of failure, damage, error, accidents, harm or any other event which could be...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
and economic regulation
Regulatory economics
Regulatory economics is the economics of regulation, in the sense of the application of law by government that is used for various purposes, such as centrally-planning an economy, remedying market failure, enriching well-connected firms, or benefiting politicians...
. Transport economics considers issues of the economic regulation of the supply of transport, particularly in relation to whether transport services and networks are provided by the public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
(i.e. socially), by the private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
(i.e. competitively) or using a mixture of both.
Transport networks and services can take on any combination of regulated/deregulated and public/private provision. For example, bus
Bus
A bus is a road vehicle designed to carry passengers. Buses can have a capacity as high as 300 passengers. The most common type of bus is the single-decker bus, with larger loads carried by double-decker buses and articulated buses, and smaller loads carried by midibuses and minibuses; coaches are...
services in the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
outside London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
are provided by both the public and private sectors in a deregulated economic environment (where no-one specifies which services are to be provided, so the provision of services is influenced by the market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
), whereas bus services within London are provided by the private sector in a regulated economic environment (where the public sector specifies the services to be provided and the private sector competes for the right to supply those services - i.e. franchising
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
).
The regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
of public transport is often designed to achieve some social, geographic and temporal equity as market forces might otherwise lead to services being limited to the most popular travel times along the most densely settled corridors of development. National, regional or municipal taxes are often deployed to provide a network that is socially acceptable (e.g. extending timetables through the daytime, weekend, holiday or evening periods and intensifying the mesh of routes beyond that which a lightly regulated market would probably provide).
Franchising may be used to create a supply of transport that balances the free-market supply outcome and the most socially desirable supply outcome.
Project appraisal and evaluation
The most sophisticated methods of project appraisal and evaluation have been developed and applied in the transport sector. It should be noted that the terms 'appraisal' and 'evaluation' are often confused in relation to the assessment of projects. Appraisal refers to ex ante (before the event) assessment and evaluation refers to ex post (after the event) assessment.Appraisal
The appraisal of changes in the transport network is one of the most important applications of transport economics. In order to make an assessment of whether any given transport project should be carried out, transport economics can be used to compare the costs of the project with its benefits (both social and financial). Such an assessment is known as a cost-benefit analysisCost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
, and is usually a fundamental piece of information for decision-makers, as it places a value on the net benefits (or disbenefits) of schemes and generates a ratio of benefits to costs which may be used to prioritise projects when funding is constrained.
A primary difficulty in project appraisal is the valuation of time
Value of time
In transport economics, the value of time is the opportunity cost of the time that a traveller spends on his/her journey. In essence, this makes it the amount that a traveller would be willing to pay in order to save time, or the amount they would accept as compensation for lost time.One of the...
. Travel time savings are often cited as a key benefit of transport projects, but people in different occupations, carrying out different activities and in different social classes value time differently.
Appraising projects on the basis of their supposed reductions in travel times has come under scrutiny in recent years with the recognition that improvements in capacity generate trips that would not have been made (induced demand
Induced demand
Induced demand, or latent demand, is the phenomenon that after supply increases, more of a good is consumed. This is entirely consistent with the economic theory of supply and demand; however, this idea has become important in the debate over the expansion of transportation systems, and is often...
), partially eroding the benefits of reduced travel times. Therefore an alternative method of appraisal is to measure changes in land value
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
and consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
benefits from a transport project rather than the measuring benefits accruing to travellers themselves. However, this method of analysis is much more difficult to carry out.
Another problem is that many transport projects have impacts that cannot be expressed in monetary terms, such as impacts on, for example, local air quality, biodiversity and community severance. Whilst these impacts can be included in a detailed environmental impact assessment
Environmental impact assessment
An environmental impact assessment is an assessment of the possible positive or negative impact that a proposed project may have on the environment, together consisting of the natural, social and economic aspects....
, a key issue has been how to present these assessments alongside estimates of those costs and benefits that can be expressed in monetary terms. Recent developments in transport appraisal practice in some European countries have seen the application of multi-criteria decision analysis
Multi-Criteria Decision Analysis
Multiple-criteria decision-making or multiple-criteria decision analysis is a sub-discipline of operations research that explicitly considers multiple criteria in decision-making environments. Whether in our daily lives or in professional settings, there are typically multiple conflicting criteria...
based decision support tools. These build on existing cost-benefit analysis
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
and environmental impact assessment
Environmental impact assessment
An environmental impact assessment is an assessment of the possible positive or negative impact that a proposed project may have on the environment, together consisting of the natural, social and economic aspects....
techniques and help decision makers weigh up the monetary and non-monetary impacts of transport projects. In the UK, one such application, the New Approach to Appraisal
New Approach to Appraisal
The New Approach to Appraisal was the name given to a multi-criteria decision framework used to appraise transport projects and proposals in the United Kingdom...
has become a cornerstone of UK transport appraisal.
Evaluation
The evaluation of projects enables decision makers to understand whether the benefits and costs that were estimated in the appraisal materialised. Successful project evaluation requires that the necessary data to carry out the evaluation is specified in advance of carrying out the appraisal.The appraisal and evaluation of projects form stages within a broader policy making cycle that includes:
- identifying a rationale for a project
- specifying objectives
- appraisal
- monitoring implementation of a project
- evaluation
- feedback to inform future projects.
Social Effects on Poverty
Those with low income living in cities face a problem called “poverty transportation.” The problem arises because many of the entry level jobs which are sought out by those with little education are typically located in suburban areas. Those jobs are also not very accessible by public transportation because the transportation was often designed to move people around cities, which becomes a problem when the jobs are no longer located in the cities. Those who cannot afford cars inevitably suffer the worst, because they have no choice but to rely on public transport. The problem is illustrated by an estimation that 70% of entry level jobs are located in the suburbs, while only 32% of those jobs are within a quarter mile of public transportation. More difficult (or more expensive) access to jobs and other goods & services can act as a ghetto taxGhetto Tax
The term ghetto tax is used to describe the generally higher prices those with low incomes pay for goods and services, particularly those living in poverty-stricken areas.-Economic principles:...
.
As a result of the transportation systems in use, but not adequately meeting the needs of those who rely on them, they tend to generate low revenue. And with minimal revenue or funding the transportation systems are forced to decrease service and increase fares, which causes those in poverty to face more inequality. Further those who live in cities with no public transportation become even more excluded from education and work. In places with no public transport a car is the only viable option and that creates unnecessary strain on the roads and environment.
Since automobile use tends to be greater than public transportation use, it also becomes the norm for people to work towards car ownership. Private car ownership has led to a large allocation of resources towards road and bridge maintenance. But underfunding of public transportation prevents everyone who needs transportation from having access to it. And those who can choose between public transportation and private transportation will choose private transportation rather than face the inconveniences of public transportation. The lack of customers willing to use public transport creates a cycle that ultimately never leads to the transportation systems making significant progress. Another reason for low private vehicle ownership among welfare recipients are the established asset limitations. In the U.S. the asset limit is $1000 per vehicle. This forces welfare recipients to purchase old and sub standard vehicles in order not to lose their welfare funding.
There are a number of ways in which public transportation could be improved and for it to become a better and more enticing option for other people who do not necessarily depend on it. Some of these include creating networks of overlapping routes even among different operators to give people more choice in where and how they want to go somewhere. The system should also function as a whole, to prevent drivers from dangerously racing along routes to increase profit. Providing incentives to use public transportation can also be beneficial, as ridership increases the transportation systems can appropriately respond by increasing the frequency along those transportation routes. Even creating bus only lanes or priority lanes at intersections could improve service and speed.
Experiments done in Africa (Uganda and Tanzania) and Srilanka on hundreds of households have shown that a bicycle can increase the income of a poor family by as much as 35%]. Transport, if analyzed for the cost-benefit analysis for rural poverty alleviation, has given one of the best returns in this regard. For example, road investments in India were a staggering 3–10 times more effective than almost all other investments and subsidies in rural economy in the decade of 1990s. What a road does at a macro level to increase transport, the bicycle supports at the micro level. Bicycle, in that sense, can be one of the best means to eradicate the poverty in poor nations.
See also
- Congestion pricingCongestion pricingCongestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...
- InfrastructureInfrastructureInfrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
- Transport financeTransport financeTransport finance is the subject that explores how transport networks are paid for. The timing of the money required to finance transport is a principal issue. Many projects are "pay-as-you-go", that is infrastructure, which lasts many years, is expected to be paid out of ongoing cash flow. Other...
- Road pricingRoad pricingRoad pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
- Road space rationingRoad space rationingRoad space rationing is a travel demand management strategy aimed to reduce the negative externalities generated by peak urban travel demand in excess of available supply or road capacity, through artificially restricting demand by rationing the scarce common good road capacity, especially...
- Vignette (road tax)Vignette (road tax)A road tax vignette is a form of tax on vehicles, used in several non-English speaking European countries. The term is of French origin, and is now used throughout Central Europe....
- Transport economics
- List of economics topics