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catallaxy in technical exile

Summary of Winston on 'The effect of government highway spending on road users' congestion costs'

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As promised, here is a summary of today’s lecture by Dr Cliff Winston on road spending vs road pricing.

Firstly some context. This particular lecture was more focused than I expected on Winston’s findings on the effects of highway spending on road congestion in the US. However, there is a reason for this. Winston is presenting a series of talks throughout Australia of which this represents just one strand of his overall work in the area. Tomorrow he is speaking on the second strand of his work to the Bureau of Transport and Regional Economics. These strands taken together do have a broader agenda, more of which later.

Anyway back to the lecture. As noted it was about his econometric findings on the extent to which highway spending by government in the US have reduced congestion. He investigated this by specifying a semi-logarithmic functional form equation (no need to go into detail about this, just for the math nuts among you) with Annual Congestions Costs in Urbanised Areas as the dependent variable (i.e. the variable to be explained as the function of other things) and plugged in a whole lot of explanatory variables representing various types of highway spending as well as non-highway spending factors. In the early part of the lecture he went into a bit of detail on the methodological issues involved in this exercise.

For example congestions costs were calculated for 74 US cities from 1982 to 1996 and defined as additional fuel costs arising from delays plus annual hours of delay times value of time per hour (Yes he managed to get hold of delay related data as there is a whole organisation in the US that specialises in measuring this every year). Of course this involved a lot of tricky data processing. Winston also noted that in the US roads were already more or less in place and the vast majority of highway spending was on maintenance rather than building new roads, but all with the ostensible purpose of reducing congestion nonetheless. But the point here was that given the already accumulated capital stock, the flow of highway spending would be expected to add little to per capita value of stock.

To cut a long story short, Winston reproduced his results which found that $1 of spending reduced motorists’ congestion costs by 3 cents in 1996.

However the results that attracted some debate were those on the extent to which non-highway related spending contributed to increasing or reducing congestion. One striking result from Winston’s study was that spending on buses increased rather than decreased congestion (i.e. he arrived at a positive coefficient. Winston noted that the data for bus mileage he plugged in included both buses with right of way and buses which operated side by side with other traffic. His explanation for this counterintuitive result was that
1) for buses with bus only lanes, a not insubstantial part of road capacity effectively has to be set aside for them, therefore adding to congestion by reducing capacity
2) for buses without exclusive lanes, their frequent stops and starts would add to congestion
3) therefore to offset these effects and make a net contribution to reducing rather than increasing congestion buses had to have a very high load factor
4) there simply was not anything close to this desired load factor at least in the US where utilisation of buses was much lower.

At this point a few transport industry insiders piped up and argued that at least in the case of Sydney city, buses had sufficiently high load factors to make a net contribution to reducing congestion.

Anyway, as expected, rail had the ‘right’ sign i.e. negative. But as Winston noted rail had a natural advantage because given its fixed costs its location was likely to be more carefully selected so it would be placed in areas with sufficiently high density to ensure high usage. And obviously it has less effects in reducing existing road capacity. The implication of this was that the downside of rail was that demographic factors (i.e. movement of population centres) could undermine this initial locational advantage.

Moving on, Winston performed a similar exercise but this time for truckers and firms’ congestion costs. The discussion of the methodology he employed in this led to a bit of a segue into the role of inventory costs. For instance, to calculate costs to shippers of congestion he had to use an implicit daily discount rate to account for the reduction in value of inventories due to delays, so the discount rate had to vary by commodity (e.g. shippers carrying lots of perishables would face higher delay costs).

His results in this case were only slighly better than for urban motorists. He found that $1 of highway spending in 1997 reduced truckers’ congestion costs by 5.1 cents and reduced firms’ congestion costs by 3.3 cents.

And now here we come to the kicker. Using the congestion cost functions that he had already derived and the results therefrom, Winston solved the following problem – how to minimise total highway costs, to be defined as road users’ congestion costs and state highway spending subject to the current level of spending? i.e. what would the world look like if highway spending had actually been allocated in a way that aimed at minimising congestion costs (the purported legislative objective of all the spending he studied?) by targeting areas with the greatest congestion?

His result – if spending had actually been allocated to reduce congestion, congestion costs would be reduced by almost 40 per cent from what was actually measured in the period studied.

As another illustration of the same point, he found that whereas under the status quo $1 of spending reduced motorists’ congestion costs by 3 cents, under the optimum the same $1 should have been expected to reduce their congestion cost by 19 cents (there was a slight reduction in the benefit that freight got from spending from 8 cents to 6 cents).

It was at this point that Winston moved on to a more normative and political economy oriented discussion. He noted the ‘spoils’ system in the US political process. He argued that the ineffectiveness of highway spending was likely due to a combination of the following factors:
1) pork barreling (i.e. spending on the basis of pleasing constituents – the ‘spoils’ system alluded to previously);
2) slow and inappropriate responses to demographic changes (e.g. movement of population and changes in pattern of use of various forms of transport)
3) inflated labour costs and excessive maintenance expenses from poor road design.
4) however, harking back to his earlier point that the vast majority of highway spending is now on maintenance, he argued that since the capital stock in the US at least in terms of intracity roads is already more or less complete, it had already extracted most of the ‘bang for the buck’.

In other words, there is intrinsically going to be little further improvement in congestion from spending more on roads where the road system is close to complete.

Insofar as congestion created by physical deterioration in road infrastructure goes, cars do not wear down roads heavily, though heavy freight does – and dealing with the latter is an issue of ensuring that the freight sector internalises the costs it imposes. The congestion produced by cars on the other hand is best dealt with by smoothing the flow of traffic through the day. Further spending which is basically aimed at addressing road deterioration and maintaining roads to their existing standards would not be expected to yield further improvements in congestion because of the pattern of car usage.

For the above reasons, Winston made the negative but compelling case for road pricing as the only other useful tool left in the box for reducing congestion. Apparently the other strands of his work, including those to be presented in the second lecture tomorrow which I mentioned will sketch out the details of road pricing in more detail.

What of his broader agenda? There were some intriguing comments alluding to this in his pessimisitic assesment of the prospects for rationally instituted road pricing in government hands. In a paper related to the research summarised here which I have previously commented on, Winston noted:

In the final analysis, policymakers’ lack of interest in congestion tolls may have less to do
with pricing’s distributional effects than with the distributional effects of highway spending.
Highway spending supports projects so politically popular with federal, state, and local
policymakers and constituents that Senator Rick Santorum recently warned lawmakers “not to
get between a congressman and asphalt, because you will always get run over.”

Winston concluded on the intriguing note that as long as roads remained under the ownership of governments, there would be little prospect of rational reform of the system, but did not elaborate much on this point, which was apparently a teaser for his second talk. It may be that Winston’s assessment is unduly pessimistic but it is a little clearer from the above what he sees the long run policy vision to be.

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Written by Admin

June 13, 2006 at 9:27 pm

Posted in Uncategorized

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