ECN 190/TTP 215 Lecture 16

Transportation Economics:
Highway Congestion
Highway Travel: Congestion

• Let V=volume (number of vehicles passing a

given point per hour)
• D=density (number of vehicles per unit
distance)
• S=speed. Then these three variables must
satisfy the relation:
• V = DS
• But they are inter-related! Draw this as:
Congestion graphs:
• Maximum volume Vm, density Dm, speed S0

• Vm left (upper) branch is congestion

• right (lower)branch is hyper-congestion
V
D Dm
a. Flow vs. Density

S0 S0

S S

D Dm V Vm
b. Speed vs. Density c. Speed vs. Flow
Time spent on each trip:

• The time spent on each trip is inversely

proportional to speed, or 1/S.
• We will focus on the “congestion” portion of
the speed vs. flow graph, so that 1/S is
increasing in the flow V
• Suppose there is a (fixed) consumer cost of
time, and then evaluate the average costs of
time per trip, c(V)
Average costs of time spent, E.g. 1:
k
c(V; VK ) = c 0 + c 2f (V / VK ) = c 0 + c 2 (V / VK )
• with VK=capacity. Total costs are:
k
C(V; VK ) = V[c0 + c 2 (V / VK ) ]
• marginal costs are:

k
MC = ∂ C(V; VK ) / ∂ V = c0 + (k + 1)c 2 (V / VK )
• decreasing returns for k>0;
Costs of time:
• This gives us cost curves:
Cost per vehicle

MC

kc2
AC
c2
C0

VK Volume
Average costs of time spent, E.g. 2:
• Average costs,

c 0 if V/VK ≤ 1
c(V; VK ) = 

c 0 + c 2 (V / VK − 1) if V/VK > 1.
• marginal costs are,


c 0 if V/VK ≤ 1
mc = 

c 0 + c 2 (2V / VK − 1) if V/VK > 1.
Cost of time:
• This gives us cost curves:

Cost per vehicle

MC

Slope=2c2/Vk
c0+c2
AC
Slope=c2/Vk
c0
VK Volume
Social costs of automobile travel
Type of cost Cost ($ per vehicle-mile in
1989 US prices)
Costs borne mainly by Highway users in aggregate:
(1) Running costs 0.068
(2) Vehicle capital 0.188
(3) Time 0.120
(4) Schedule delay 0.066
Costs borne partially by non-users:
(5) Accidents 0.179
(6) Parking (CBD fringe) 0.136
Total:
Without parking 0.621
With parking 0.757
Social Optimum
V
• Social Benefits, B = ∫ P(V′)dV′
• Social costs are, 0

C = Vc (V / Vk ) + ρK (Vk )

• Net social benefits, choose V and VK to

V
NSB = ∫ P(V′)dV′ − Vc(V / VK ) − ρK (VK )
0
Social Optimum
• Choose V to max Net social benefits:

dNSB V
= P(V) − [c(V / VK ) + c'⋅ ] = 0
dV VK
• or,
V
P(V) = c(V / VK ) + c'⋅
VK
• Price = Waiting Cost + Toll
Average costs of time spent, E.g. 1:
k
c(V; VK ) = c0 + c 2 (V / VK )
• Toll is:

k
Toll = (V / VK )c' = k (V / VK )

= MC − AC
• Toll is increasing in traffic volume;
• Toll is decreasing in capacity.
Illustrate toll:
•
Cost per vehicle

MC
Toll
AC

C0 D

V1 V
0 Volume
Average costs of time spent, E.g. 2:
• Average costs,

c 0 if V/VK ≤ 1
c(V; VK ) = 

c 0 + c 2 (V / VK − 1) if V/VK > 1.
• marginal costs are,


c 0 if V/VK ≤ 1
mc = 

c 0 + c 2 (2V / VK − 1) if V/VK > 1.
Average costs of time spent, E.g. 2:
• toll is,

0 if V/VK < 1

toll =  P - c 0 if V/VK = 1
c (V / V ) if V/VK > 1.
 2 K
• Results: toll is zero at less than capacity, and increasing in
V at more than capacity
• (takes range of values < c2 at capacity)
Illustrate toll:
•
Cost per vehicle
MC

Slope=2c2/Vk

c0+c2
AC
Toll
Slope=c2/Vk
c0

VK V0 Volume
Social Optimum
• Choose VK to max Net social benefits:

2
dNSB V
= c'⋅ − ρK ' (VK ) = 0
dVK 2
• or,
VK
V
V ⋅ c'⋅ = ρVK ⋅ K ' (VK )
• V Toll = V K
? Capital Costs
⋅
Social Optimum
• Measure returns to scale as:

K / VK
sK =
K′(VK )
• then,
V
V ⋅ c'⋅ = ρ ⋅ K (VK ) / s K
VK
• V ⋅Toll = Capital Costs / sK
Results:

• With constant returns in construction,

sK=1, optimal tolls will just be enough to
cover capital costs
• With increasing returns in construction,
sK>1, optimal tolls will not be enough to
cover capital costs
• Look at evidence on capital costs:
Highway capital costs (1989 U.S.)
Degree of Rural Urban Central
Urbanization city
Width (lanes) 6 4 6 8 6
EXPRESSWAY Study 1:
Cost/lane-mile ($1000s):
Construction 916 1740 1436 1283 1955
Land 23 131 108 96 244
Total 939 1871 1543 1380 2199
Returns to Scale: 1.47 2.11 1.74 1.55 1.89
EXPRESSWAY Study 2:
Cost/lane-mile ($1000s):
Construction 1194 1570 1551 1537 4730
Land 358 507 501 497 3264
Total 1552 2078 2052 2034 7994
Returns to Scale: 1.03 1.03 1.03 1.03 1.03
Policies used in California:

• Gasoline taxes
• Vehicle registration fees
• Driver’s license fees
• Vehicle-weight fees (trucking)
• Tolls
• Not related to transportation:
• Sales taxes, and bonds
Gasoline taxes

• These are specified as cents per gallon,

so they do not keep up with inflation
• have risen from 2 cents in 1923 to
nearly 20 cents today
• Percentage tax rate has fluctuated from
high of 35% in 1935, ‘55, ‘65 to low of
10% in 1991, and about 20% in 1997
Gasoline taxes

• Relative to 1950 the amount of gasoline

taxes collected per vehicle mile of travel
in California has fluctuated:
• upwards to +40% in 1965
• then downward steadily to -60% in 1980
• slightly upwards to -40% in 1994
Sales taxes

• Beginning in 1960’s, frequency and size

of gasoline tax increases diminished,
causing funding shortfalls
• 18 countries authorized use of
supplemental sales taxes, with revenue
targeted to transportation projects
• in 1996-97, these raised $400 mill, about
25% of revenue from gas taxes
Tolls

• Optimal tolls should higher at peak hours

and on crowded roads, and lower when
and where congestion is absent
• E.g. State Route 91 in Orange County
and Interstate 151 in San Diego
• These can greatly affect congestion
• Also have bridge tolls (but probably do
little to affect congestion)
Finding 1

• California does not face an immediate

crisis of highway funding, but revenues
will not keep up with program needs.
• Democrats: propose bond issue ($8 bill)
• Also propose reducing to simple majority
the vote needed to approve half-cent
sales taxes funding transport (&
expanding counties with these taxes)
Finding 1 (cont’d)

• Republicans:
• Object to changing the rules governing
tax increases (Prop. 218); also object to
bond financing
• Propose to divert $800 million in
gasoline taxes that now go to state
general fund, and target for transport
Finding 2

• There is a trend towards decreased

reliance on user fees, and this should
be reversed
• Increase gasoline tax
• New technologies such as electronic toll
payment are possible (and are used in
Singapore, for example)
Finding 3

• Part of the vehicle license fee should be

used as a highway user fee
• Vehicle license fee raised $3.6 bill in1996-97,
comparable to state and federal gas taxes.
• This is treated as a property tax, used to fund
various programs unrelated to highways
• The vehicle license feel is due to be reduced
by 2/3 in five years (if economy grows)
Finding 4

• State system for user fees on heavy

vehicles need to be overhauled
• Fees currently based on unladen
vehicle weights and number of axles,
not loaded weights which determine
damage to pavement
• Trucking industry a strong lobby here