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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 (the final good, in the consumer's eyes) 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 (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 goods involved in transport decisions (discrete choice models) 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 (e.g. passenger-kilometers for public transport or vehicle-kilometers 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 (i.e. capacity) are of particular interest in transport economics (see induced demand), as the potential environmental consequences are significant (see externalities below).
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 (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 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 (i.e., a derived demand). 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.
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).
From 2008 to 2011, Milan had a traffic charge scheme, Ecopass, that exempted higher emission standard vehicles (Euro IV) and other alternative fuel vehiclesThis 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."
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 (unlike rationing) 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 (1982), México City (1989), São Paulo (1997), Santiago, Chile, Bogotá, Colombia, La Paz (2003), Bolivia, and San José (2005), Costa Rica.
A more acceptable policy on automobile travel restrictions, proposed by transport economiststo 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.
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 (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.
Regulation 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, by the private sector, or 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.
The most sophisticated methods of project appraisal and evaluation have been developed and applied in the transport sector. 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.
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 analysis, 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 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:
In the US 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 tax.
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 Sri Lanka 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 the 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.
Car taxation is an instrument to influence the purchase decisions of consumers. Taxes can be differentiated to support the market introduction of fuel efficient and low carbon dioxide (CO2) emitting cars.
The European Union Commission has made a proposal for a Council Directive on passenger car taxation which is currently before the Council and Parliament.
The Commission encourages again Member States to adopt this proposal as soon as possible and to adapt their car taxation policies so as to promote the purchase of fuel efficient cars throughout the EU and help manufacturers respect the upcoming fuel efficiency framework, thus contributing their share to reducing the CO2 emissions of cars. Taxes differentiated over the whole range of cars on the market, so as to gradually induce a switch towards less emitting cars, would be an efficient way to reduce compliance costs for manufacturers.
In 2011, for a brand new VW Golf Trendline (80 PS, 5G 2T) the taxation rate (all inclusive, i.e. VAT+registration tax+any other taxes) on acquisition was as follows:
|Country||After tax (in €)||Before tax (in €)||Taxation rate (%)|
A highway is any public or private road or other public way on land. It is used for major roads, but also includes other public roads and public tracks. In some areas of the United States, it is used as an equivalent term to controlled-access highway, or a translation for autobahn, autoroute, etc.
In economics, an externality is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. We are all made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morning. The people who live in the apartment do not compensate the bakery for this benefit.
A toll road, also known as a turnpike or tollway, is a public or private road for which a fee is assessed for passage. It is a form of road pricing typically implemented to help recoup the costs of road construction and maintenance.
Road pricing are direct charges levied for the use of roads, including road tolls, distance or time based fees, congestion charges and charges designed to discourage use of certain classes of vehicle, fuel sources or more polluting vehicles. These charges may be used primarily for revenue generation, usually for road infrastructure financing, or as a transportation demand management tool to reduce peak hour travel and the associated traffic congestion or other social and environmental negative externalities associated with road travel such as air pollution, greenhouse gas emissions, visual intrusion, noise pollution and road traffic collisions.
Congestion pricing or congestion charges is a system of surcharging users of public goods that are subject to congestion through excess demand, such as through higher peak charges for use of bus services, electricity, metros, railways, telephones, and road pricing to reduce traffic congestion; airlines and shipping companies may be charged higher fees for slots at airports and through canals at busy times. Advocates claim this pricing strategy regulates demand, making it possible to manage congestion without increasing supply.
Traffic congestion is a condition in transport that is characterised by slower speeds, longer trip times, and increased vehicular queueing. Traffic congestion on urban road networks has increased substantially, since the 1950s. When traffic demand is great enough that the interaction between vehicles slows the speed of the traffic stream, this results in some congestion. While congestion is a possibility for any mode of transportation, this article will focus on automobile congestion on public roads.
The Singapore Area Licensing Scheme (ALS), was a road pricing scheme introduced in 1975 to 1998, charged drivers who were entering downtown Singapore, and thereby aimed to manage traffic demand. This was the first urban traffic congestion pricing scheme to be successfully implemented in the world. This scheme affected all roads entering a 6-square-kilometre area in the Central Business District (CBD) called the "Restricted Zone" (RZ), later increased to 7.25 square kilometres to include areas that later became commercial in nature. The scheme was replaced in 1998 by the Electronic Road Pricing.
Cost–benefit analysis (CBA), sometimes also called benefit–cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings. For example, in transactions, activities, and functional business requirements. A CBA may be used to compare, completed or potential courses of actions. Also to estimate the value against the cost of a decision, project, or policy. It is commonly used in commercial transactions, business or policy decisions, and project investments. For example, the U.S. Securities and Exchange Commission has to conduct cost-benefit analysis before instituting regulations or de-regulations.
Transportation demand management, traffic demand management or travel demand management (TDM) is the application of strategies and policies to reduce travel demand, or to redistribute this demand in space or in time.
In transport economics, the generalised cost is the sum of the monetary and non-monetary costs of a journey. It is sometimes used as a basis for judgements of transit accessibility and equitable distribution of public transit resources.
Motoring taxation in the United Kingdom consists primarily of vehicle excise duty, which is levied on vehicles registered in the UK and hydrocarbon oil duty which is levied on the fuel used by motor vehicles. VED and fuel tax raised approximately GB£32 billion in 2009, a further £4 billion was raised from the value added tax on fuel purchases. Motoring-related taxes for fiscal year 2011/12, including fuel duties and VED, are estimated that will amount to more than GB£38 billion, representing almost 7% of total UK taxation.
Compared to other popular modes of passenger transportation, the car has a relatively high cost per person-distance traveled. The income elasticity for cars ranges from very elastic in poor countries, to inelastic in rich nations. The advantages of car usage include on-demand and door-to-door travel, and are not easily substituted by cheaper alternative modes of transport, with the present level and type of auto specific infrastructure in the countries with high auto usage.
Road space rationing, also known as alternate-day travel, driving restriction, no-drive days, is a travel demand management strategy aimed to reduce the negative externalities generated by urban air pollution or 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 during the peak periods or during peak pollution events. This objective is achieved by restricting traffic access into an urban cordon area, city center (CBD), or district based upon the last digits of the license number on pre-established days and during certain periods, usually, the peak hours.
The Ecopass program was 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 8.2 km2 (3.2 sq mi). The Ecopass was implemented as a one-year trial program on January 2, 2008, and later extended until December 31, 2009. A public consultation was planned to be conducted early in 2009 to decide if the charge becomes permanent. Subsequently, the current charge-scheme was prolonged until December 31, 2011 and starting from January 16, 2012 a new scheme was introduced, actually converting it from a pollution-charge to a conventional congestion charge.
San Francisco congestion pricing is a proposed traffic congestion user fee for vehicles traveling into the most congested areas of the city of San Francisco at certain periods of peak demand. The charge would be combined with other traffic reduction projects. The proposed congestion pricing charge is part of a mobility and pricing study being carried out by the San Francisco County Transportation Authority (SFCTA) to reduce congestion at and near central locations and to reduce its associated environmental impacts, including cutting greenhouse gas emissions. The funds raised through the charge will be used for public transit improvement projects, and for pedestrian and bike infrastructure and enhancements.
A vehicle miles traveled tax, also frequently referred to as a VMT tax, VMT fee, mileage-based fee, or road user charge, is a policy of charging motorists based on how many miles they have traveled.
Public transport is a system of transport for passengers by group travel systems available for use by the general public unlike private transport, typically managed on a schedule, operated on established routes, and that charge a posted fee for each trip. There is no rigid definition; the Encyclopædia Britannica specifies that public transportation is within urban areas, and air travel is often not thought of when discussing public transport—dictionaries use wording like "buses, trains, etc.", and UK government COVID-19 guidance lists operators with no mention of air travel.
In cost–benefit analysis and social welfare economics, the term option value refers to the value that is placed on private willingness to pay for maintaining or preserving a public asset or service even if there is little or no likelihood of the individual actually ever using it. The concept is most commonly used in public policy assessment to justify continuing investment in parks, wildlife refuges and land conservation, as well as rail transportation facilities and services. It is also recognized as an element of the total economic value of environmental resources.
Urban freight distribution is the system and process by which goods are collected, transported, and distributed within urban environments. The urban freight system can include seaports, airports, manufacturing facilities, and warehouse/distribution centers that are connected by a network of railroads, rail yards, pipelines, highways, and roadways that enable goods to get to their destinations.
The externalities of automobiles, similarly to other economic externalities, are the measurable difference in costs for other parties to those of the car proprietor, such costs not taken into account when the proprietor opts to drive their car. According to Harvard University, the main externalities of driving are local and global pollution, oil dependence, traffic congestion and traffic accidents; while according to a meta-study conducted by the Delft University these externalities are congestion and scarcity costs, accident costs, air pollution costs, noise costs, climate change costs, costs for nature and landscape, costs for water pollution, costs for soil pollution and costs of energy dependency.
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