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.
Contents
- Funding and financing
- Regulation and competition
- Project appraisal and evaluation
- Appraisal
- Evaluation
- Social effects on poverty
- Car taxation
- Tax rates on acquisition
- References
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 such 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).
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 (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 and competition
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 (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.
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 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.
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:
Social effects on poverty
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
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.
Tax rates on acquisition
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: