Transport economics
Transport economics is a branch of economics founded in 1959 by American economist John R. Meyer that deals with the allocation of resources within the transport sector. It has strong links to 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. Advance ticket purchase is often induced by lower fares. The networks themselves may or may not be competitive. A single trip may require the bundling of 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 effects and choices between dissimilar goods make estimating the demand for transportation facilities difficult. The development of models to estimate the likely choices between the goods involved in transport decisions led to the development of an important branch of econometrics, as well as a Nobel Prize for Daniel McFadden.
In transport, demand can be measured in number of journeys made or in total distance traveled across all journeys. Supply is considered to be a measure of capacity. The price of the good is measured using the generalised cost of travel, which includes both money and time expenditure.
The effect of increases in supply are of particular interest in transport economics, as the potential environmental consequences are significant.
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 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 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
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 by allocating scarce roadway capacity to users. Capacity expansion is also a potential mechanism to deal with traffic congestion, but is often undesirable and sometimes has questionable benefits. 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 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, e.g. on the London Underground on a weekday or any urban train station, at peak times. There is the classical excess in demand compared to supply. This is because at peak times there is a large demand for trains, since people want to go home. However, space on the platforms and on the trains is limited and small compared to the demand for it. As a result, there are crowds of people outside the train doors and in the train station corridors. This increases delays for commuters, which can often cause a rise in stress or other problems. A possible solution for this is fare reduction for travel at off-peak times.
Congestion pricing
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 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. 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 ; Stockholm in 2006, as seven-month trial, and then on a permanent basis since August 2007.
Pollution pricing
From 2008 to 2011, Milan had a traffic charge scheme, Ecopass, that exempted higher emission standard vehicles and other alternative fuel vehicles This was later replaced by a more conventional congestion pricing scheme, Area C.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 noted regional planner Robert 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 move about unencumbered. It is for all these reasons that peak-period pricing remains a pipe dream in the minds of many."
Road space rationing
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. Moreover, congestion pricing acts "to allocate a scarce resource to its most valuable use, as evinced by users' willingness to pay for the resource". While some "opponents of congestion pricing fear that tolled roads will be used only by people with high income. But preliminary evidence suggests that the new toll lanes in California are used by people of all income groups. The ability to get somewhere fast and reliably is valued in a variety of circumstances. Not everyone will need or want to incur a toll on a daily basis, but on occasions when getting somewhere quickly is necessary, the option of paying to save time is valuable to people at all income levels." Road space rationing based on license numbers has been implemented in cities such as Athens, México City, São Paulo, Santiago, Chile, Bogotá, Colombia, La Paz, Bolivia, and San José, Costa Rica.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 rationing 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 credits, 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.Funding and financing
Methods of funding 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. Taxation and user fees are the main methods of fund-raising. Taxation may be general, local or variable, 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.