[sustran] Economic Development Benefits of Highways

[Todd Litman]

>Just to raise one further point, Todd says
>
>> The question is not whether motor vehicle use provides benefits. Obviously
>> it does or people would not be shelling out a major portion of their income
>> to drive. However, the real question is whether marginal benefits exceed
>> marginal costs which would justify existing high levels of automobile use
>> (probably not), and whether external marginal benefits exceed external
>> marginal costs which would justify underpricing automobile use (almost
>> certainly not). There is no reason to assume that there are significant
>> external marginal benefits from driving (i.e., you benefit if all of your
>> neighbors drive MORE than they do now) for the simple reason that rational
>> consumers tend to internalize benefits and externalize costs. Researchers
>> that have looked for external benefits have found few, and virtually no
>> marginal external benefits.
>
At 11:14 AM 6/30/99 -0400, Walter Hook wrote:
>The argument is not over whether there are external benefits from individuals
>who drive, the way there are external costs.
>I agree that there are not.  Where this comes up is in cost benefit analysis
>about whether or not to invest in a new road.  There used to be some
discussion
>of quantifying 'economic development' benefits from new infrastructure above
>and beyond the usual quantified benefits of reduced travel time and fuel for
>existing drivers.  This was the classic Rosenstein-Rodan justification for
>public investment into 'social overhead capital.'  Most of the time these
>benefits are not quantified, but they probably could be. I'm just playing
>devils advocate here.

Walter explains nicely the common justification for highway investments and
subsidies, which is probably true in a developing country where basic road
access is a significant constraint on economic activity, but most objective
research indicates that in developed countries, increased highway capacity
provides relatively little economic development benefits. This is exactly
what economic theory would suggest: as highways and automobile use increase
marginal benefits deminish. Now, adding new highway capacity tends to
simply shift around economic activity (e.g., shifting business locations
from a traditional downtown to a suburban highway intersection) and
provides consumer benefits (such as the ability to work in a city and live
further out in rural areas), but these benefits do not increase
productivity, economic development or employment (i.e., provide exernal
economic benefits).

Although highway investments showed high returns on investment (0.54)
during the 1960s, this declined to a low level (0.09) by 1991, indicating
that there are far more productive ways to spend the funds. (Economic
Effects of Federal Spending on Infrastructure and Other Investments,
Congressional Budget Office [http://www.cbo.gov], June 1998). Measures that
encourage more efficient use of existing roadway capacity are likely to
provide far greater economic benefits than increasing roadway capacity
(Marlon G. Boarnet, "Road Infrastructure, Economic Productivity, and the
Need for Highway Finance Reform," Public Works Management & Policy, Vol. 3,
No. 4, April 1999, pp. 289-303).  

My conclusion is that in most communities, increasing highway capacity will
at best attract some additional business activity that would otherwise
locate elsewhere in the region, but is unlikely to signficiantly increase
regional economic development. On the other hand, increased highway
capacity, and the increased vehicle travel that results, imposes a number
of economic, social and environmental costs. In developed countries with
adequate road system, much greater benefits are likely to result from TDM
strategies that encourage more efficient use of existing highway capacity. 

As long as automobile use is as underpriced as it currently is in North
America, it is wrong to assume that increased automobile use reflects true
net benefits to society. A number of pricing reforms should be implemented
before highway capacity is increased, in order to insure net benefits. At a
minimum, new highway capacity should be financed through direct tolls that
test users willingness to pay the costs of that additional unit of
capacity. Only if new capacity is likely to recover its costs through tolls
should it be considered economically viable. 


For more information on these issues see:

Marlon Boarnet, "New Highways & Economic Productivity: Interpreting Recent
Evidence," Journal of Planning Literature, Vol. 11, No. 4, May 1997, pp.
476-486. 

Standing Committee on Trunk Road Assessment, Transport Investment,
Transport Intensity and Economic Growth: Interim Report, Dept. of
Environment, Transport and Regions (London;
www.roads.detr.gov.uk/roadnetwork/heta/sactra98.htm), 1997.

Todd Litman and Felix Laube, Automobile Dependency and Economic
Development, VTPI (http://www.islandnet.com/~litman), 1999.

Todd Litman, The Costs of Automobile Dependency, VTPI
(http://www.islandnet.com/~litman), 1998.

Todd Litman, Potential TDM Strategies, VTPI
(http://www.islandnet.com/~litman), 1998.


Sincerely,

Todd Litman, Director
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"
1250 Rudlin Street
Victoria, BC, V8V 3R7, Canada
Phone & Fax: 250-360-1560
E-mail:  litman at islandnet.com
Website: http://www.islandnet.com/~litman