UC Berkeley Earlier Faculty Research Title Economics and Urban Transportation Policy in the United States Permalink https://escholarship.org/uc/item/7mz1326k Author Small, Kenneth A. Publication Date 1997 eScholarship.org Powered by the California Digital Library University of California Economicsa nd Urb~ait Transportation Policy in the United States Kenneth A. Small UCTC No 219 The Cm’:~.cr d~ribut~ r~po~ on l~ r~cnrc~ m working papas, monographs, andi n mpnnt~o f published arctic. It also pubI~slmAs ccessa, magazinep r=s~nthxgs um- mm’i~o~ s~I~c~csmdc h~s,F or a list of pubkicati~min prin~ wri~ to the ~dmssb ~low. Thceo ntenotf~~ hirse porreLf let~h ev iewosf t heS L~0~wSh,o responsf|borle th ef ~ andth ea ccuraocfyt h ei nfonn~porens ented hereinT.h isd ocumise dnits sereinu~tned~e rsthp¢o nsoresfh thipe Departmoef nT~ra nspor~fUieenP,~ emTimt~n spn~~fniotenr Psr ogram, Jnt hei nteresotf i nfo~afiee~nc haTnhpe.U .S,G overnamsesnutm neos iiabi~fi~o r~ e¢ or~eoartus s teh ereof. Reprinted from REGIONAL SCIENCE AND URBAN ECONOMICS Regional Sclence and Urban Econormcs 27 (1997) 6"71-691 Economics and urban transportation policy in the United States KennethA Small* Department of Economics, Umvers~ty of Cahforma, lrvme~ CA 92697, USA Received 25 July 1995, accepted 30 May 1996 REGIONAL SCIENCE AND URBANE CONOMICS Aims and Scope RegionaSl ciencea ndU rbanE conom;cesx ists to facilitate ande ncouragteu gh qual~ys cholarshipo n Importantt heoretical and empmcails sues in urban and regional research Given a rapidly changing field, the joumars emphasisis on nucrm~"onomatcn alyses of spatial phenomenTah e joumgl sohcIt~ ongmalr esearchc ontdbutmnsm spat=el economics, econom¢g eography,a nd rslsted disciphnes Wee ncouraget he submiss~ono f theoretical and empmcaclo ntnbut=ons related to marketo rgen;zat=o=nn space,h ousinga ndl abor markets,t ransportation, andt otal pubhoe conomies Editors: JOHNM QUIGLEYG, raduateS choolo f PubhcP ohcy, Umversn’yo f Cahfom=a2, 607H earst Avenue,B erkeley, CA9 4720, USA KONRAOD S TAHL,D epa~menot f Economics,U n;versity of MannhelmD, ~68131M annhelmG, ermany BookR eviewE dltor RICHARADR NO’I-F,D epartmenot f EcenomEc5sc, atch College, Chestnutt Hltl, MA0 2167, USA AssociateE ditors: S P ANDERSOUNnn, ters=tyo f V~rgtnla, Chadotteswlte,V A, L ANSELINW, estV ~rg~n=aU ntversrb/, MorgantownW, V,M BERLIANTW, ashingtonU niversity, St Louis, MO,A . B()RSCH-SUPAUNni,v ersity of Mannheirn,R BRAIDW, ayneS tate Un;verstty, Detroit, MI, R DAVIDSOQNu, een’sU mvers=tyK, ingston, Ont andU ntverslt~ d’A=x-Marse=lle,P ENGLUND, University of Uppsala, JWF RIEDMANU,n wers=tyo f North Carohna,C hapelH dl, NC, M FLIJITA, Kyoto Institute of EconomicR esearch, Kyoto, E GLAESERH,a rvard Umvers~y,C ambndgeM, A, J H HAMILTONC, ollege of Business Administration, Ga~nesvltle,F L, E HELPMATNe,l AvwU niversW, R HELSLEUYn, iversity of Bnt=shC olumbia,V ancouver;, P HENDERSHOOTTh,i o State Unwers~j, Columbus, OH, JV HENDERSOBNro, wn University, Providence, RI, D HOL’I’Z-EAKINS, yracuseU mvers=tyS, yracuse,N Y, K IHLANFELDGTe, orgiaS tate Umversrty,A tlanta, GA, R P INMAN, Unwerstty of Pennsylvama,P hdadstph=a,P A, Y IOANNIDEST,u fts Umverslty, Medford, MA, Y KANEMOTTOo,k yo University, G NORMATNu, fts Umverstty, Medterd, MA, J POTERBAM,I T, Cambridge,M A, WR ICHTERU, mverstty of Dortmund, H ROSENP, nncetonU nJversdy, Pnnceton, NJ, S SCOTCHMUEmRv ers~o f Cahfom;a, Berkeley, CA, K A SMALLU, mversrtyo f California, Irwne, CA, J-F THISSEU, n=verstt~d e Parts, D E WILDASINV,a nderb=ltU niversity, Nashville, TN, J M YINGERS,y racuseU niversity, NY Pub|Icatlon |nform~tlon ReglonatS c¢encea nd UrbanE conomic(sIS SN0 166-0462F) or 1998v olume2 8 =s scheduledf or pubhcat~onS ubscnpt=on pncesa re available upor~r equest from the PubhsheSr ubscnphoanrse acceptedo n a prepaid basis only anda re entered on a calendary ear bas~si ssues are sent by surface mail except to the following oountnesw herea ir dehveryv ia SAL (SurfaceA ir Lift) mad~ s ensuredA rgentina,A ustralia, Brazil, CanadaH, ongK ong,I ndia, Israel, Japan,M alaysiaM, exico, NewZ eatand,P ak=etan,P RC hina, SmgaporsS, outh Afnca, South Korea, Ta{wan,T hadand,U SAF or all other countnes alrmafl rates are available uponr equest CIalmsf or missingi ssues shouldb e madev athms ~x monthso f our pubhcatlon (malhng)d ate Orders, claims, and product enc|u=rtesP leasec ontact the CustomeSr upportD epartmenatt the Reglona~S alesO ff=co nearest you York Amsten~em Tokyo S~ngapore ElsevierS conce E)sev=eSrc ience ElsevmSr cience EtseweSr cience PCB ox 945 PCB ox 211 9-15H ;gesh~-Az1a-bcuh orea No ’[ Te~ekA venue NewY ork, NY1 0159-0945 1000A EA msterdam Mmate-kuT,o kyo1 0~ #’~7-01M dl~nleT ower USA "TheN e~her~nds Japan Singapor0e3 ~192 Tel (+t)212-833-3730 Tel (+31)20-4853757 TeE(+ 81)3-5561-5033 Tel (+65)434-3727 [Toll fr~en umbfeorr North Fax( +31)20-4853432 Fax( +61)3-5561-5047 Fax( +65)337-2230 Amenc~cnu stomers e-men~h rdo-f@elsenwler e-mallm fo@elsecwoe ~rp e-maral s~atnfo@etsceowrnes rg 1-888-4ES-IN(4F3O7 -4636)] Fax( ~ 1)212-6333680 ¯ rr~l~u s’nfo-f@elsecworenr Advett~tamg|n form,~t~on Advert=stago rders and enqumems ayb e serrt to IntemaboneE| lsevier Science, Advertising DepartmentT, he Boulevard, Langford Lane, K~dhngton,O xford OX51 GB,U K, Te~( .,-44} (0) 1885 943585, Fax (+44) (0) 1865 843976 Canada:W estonM ediaA ssociates, Daniel Lipner, PCB ox 1110, GreensF arms, CT06436-’H10U, SA," re[ (+1) (203) 261 2500,F ax (+1) (203) 261 0101J apanE lsevier ScienceJ apan,M arkebnSge rvices, 1-g-15 H~gash,-AzabuM, mato-ku, Tokyo1 06, Japan, Tel (+81) 3-5561-5032,F ax (+81) 3-5561-5045 USm ailing noteee.--RegtonaSt ciencea ndU rbanE conomicsIS, SN0 166-0462=, s publishedb ernonthtyb y Elsevier Science BV( Molenwerf1 , Postbus2 11, 1000 AEA msterdamT,h e Netherlands) Annuals ubscription price m the USA~ s US$572 (US$p ncev ahd} n North, Central andS outhA mencoan ly), including air speedd ehveryS econdc lass postageis pa~d Jamaica, NY1 1431 USAP OSTMASTSEeRnSd address changest o Regzona/Sciencea nd Urban Econormcs,P ubhcebonsE xpediting, Inc, 200 MsechaAmv enue,E tmont, NY1 1003A irfre0ght and ma~hngm the USAb y Pubhcat=onE ×ped~tmg 0166-0462/97/$17 00 Pnntedin the Netherlands ELSE-a,’IER R, egmnalS cience and UrbanE conomtcs2 7 (1997) 671-691 Econormcs and urban transportation policy in the United States Kenneth A. Small* Departmenot f EconormcsU, mverstryo f Caltforma, Irvme, CA9 2697, USA Received2 5 July 1995, accepted 30 May1 996 Abstract This arucle exarmnes the role that econormcs can play m analysmg problems with urban tra.usportataon m the UmtedS tates The specific problems addressed are fathng infra- structure, financially weak pubhc transit, enwronmentali mpacts of motor vel~cles, motor- vehicle acclde,ats, and traffic congestmn Sunple quantatauve analyses, even though approximate, c,m help to focus attentaon on the most prormsmgc lasses of pohcles Those classes involve some technological measures and some nmxowlyt argeted behavioraI changes, but r, ot the widespread cartmlment of motor vehicle use © 1997 Elsevaer Science BV Keywords Transportauon pohcy, Environmental mapacts, Cortgestton, Automobile costs, External costs JEL cIasstficanon R40, H23 1. 1. Introd~tetion Economaca rguments often play an maportant role m the formulatmn of transportataon pohcyF or example,e conormstsh ave greatly influenced regulatory pohcy m the Umted States, as documented by Winston (1993). th~s has encouraged widespread deregulatmn of mterclty transportation serwces, as well as a number of other industries, over the past twenty years While urban transporta- tmn has been less influenced by this movementt han has mterclty transportatmn, it *Correspondinga uthor Fax + 1-714-824-2182,e -maul ksmall@ue~ed u 0166-0462/97/$1070 © 1997 Elsevier Science BVA II rights reserved. PII S0166-0462(96)02166-7 672 K A Small / RegwnaSl cwncea nd UrbanE conomw2s7 (1997) 671-691 has by no means been exempt, as exemphfied by experiments with bus deregula- tion, pnvauzaUono f transit services, and road pricing In exarm~mgth e deregulaUon of mterclty transportation, Winston emphastzes the role of quantitative calculations m persuading policy makers to adopt reform He also examines the role of sophisticaUon m model bmldmg, finding that the predictive accuracy of the economlca nalyses that were done depended not on the complexaty of the analytical models use& but on whether or not major structural adjuslrnents (such as the development of hub and spoke mr networks) were anticipated and included m the models. Thus it is often the incisiveness of the econormci nsight, not the completeness of Its elaboration, that is most crucml Furthermore, the persuasiveness of economac analysis to policy makers may depend more on the credibility of such simple arguments than on the more complexm odeling efforts that quite rightly influence professionals In this paper, I exarmneh owe conormc analysis call elucidate some well-known problemso f urban transportation m the UmtedS tates (1) failing infrastructure, (2) financially weakp ubhc transit; (3) environmental impacts of transportation, (4) motor-vehmtea ccidents, and (5) traffic congesBonIn each case I argue that basic econolmc argumems can help steer pohcy away from unproducttve chrections Furthermore, relatively simple quantitative calculations can play an important role in tmderstandmgs omeo f these problemsa nd m defining the categories of potential policy responses to them that are most prolmsmg 2. Failing i~tfrastructure Winston and Bosworth (1992) provide an insightful survey of the state of U.S pubhc Infrastructure Over the past two decades, the nation has seen a sharp decline in the percentage of its gross national product (GNP)d evoted to gross investment in mfrastructltre, from nearly four percent m the late 1960s to 2¼ percent m 1990 The total value of the capital stock has declined smnlarly as a percentage of national product, from 49 percent of GNPm 1970 to 41 percent m 1990 These declines have occurred "at all levels of government and .. across a broad range of different types of capital’ (Winston and Bosworth, 1992, p 268) One of the largest categories affected by these trends ~s transportauon infra- structure, especially roads, and one of the most visible manifestations of these trends is the physical deterioration of highways, bridges, and subways Some of these dechnes are natural reductions from a peak m mfrastructure expenditures that occurred during the 1960s due to rapidly increasing school enrolments, suburbamzation, and the beginning of an ambmousIn terstate highway system Nevertheless, there is considerable evidence that unprovmgt he pubhc infrastructure would now have a high rate of return This ewdence includes macroeconom~cs tudies of the relalaonslmp between public infrastructure and productivity (Munnell, 1992) and mlcroeconomacs tudms of the costs and benefits K A Small/ RegzonaSl ciencea nd UrbanE conomic2s7 (t997) 671-691 673 of specific lt~vestments (U S. Congresmonal Budget Office, !988). C-ramhch (1994) provldzs a cauUous and insightful review of evidence and pohcy Jmphca- tions A conclusion drawn by manyi s that the UmtedS tates needs to spend more on pubhc infrastructure In fact, the nation is already movml;m that darecUons ince its low point m the early 1980s, investment m pubhc infrastructure has risen, as a fraction of GNP,f rom 2 0 percent to about 2.25 percent, core mfrastructure spending m particular has increased substantially m real terms, from about $21 bilhon to $32 billion (1992 dollars) m the case of roads1 For highways and bridges, it see~mst hat current spendingl evels, ff maintaineda s a fraction of GNP, would be sufficient to mamtmcno nchtions as they were m 1989. This still leaves somes igmficnnt deficmncles, but at least is a better prognos~s than a few years ago The mov: recent federal highwayl eglslataon, the Inlermodal Surface Trans- port,anon Efficiency Act (ISTEA)o f 1991, should continue and perhaps accelerate the trend tow~trd larger capital expendltttres on highways Howevert,k tere is little guarantee that these newe xpendlmresv ~ll be targeted to those measure~t hat are most useful A large portion of new spending m ISTEA~ s for speclaI highwayp rojects, a category heavily dependent on pohtical consldera- tlons mid wl~ a poor track record (Winston and Bosworth, 1992, p 287) I-hgh federal share,,, and biases m favor of capital intensive projects have been demonstratedl o cause mefficlencmsm a variety of types of infrastructure projects, especially mass transit. Often projects are chstnbuted widely in order to achieve a pohtically viable d~strlbutaon of expenditures, rather than targeted to those areas wherer ates o] return are highest. Furthermore, pricing policies often cause Infrastructure to be built to accommo- date mefficmnt numbers and mixes of users (Winston, 1991) In the case highways, capacity must accommodatep eak traffic volumes that are unrestrained by any slgmfic,ant pncmg,t hese volumes are further mflate~d by employer-provided parking subslcaes, which are m turn strongly encouraged by the federal tax code and by many- ~aumclpal planmng ordanances (Wfllson and Shoup, 1990) Further- more, a lack cf lmcmgm cenuves on heavy trucks causes them to mipose "damage to pavementst hat could be greatly reduced wlth relalavely inexpensive reconfigu- rations of their axles Small et al, 1989) In the case of an’ports, lanchng fees that bear httle relationship to use of scarce peak runwayc apacity result in too many fhghts at peak hours and too manys mall private mrplanes clogging the busiest commercial airports (Momsona nd Winston, 1989) Research suggests that opttmazmgin vestment strategaes and better managingt he mfrastruct~are through pricing can create measurable and very iarge reductions m the cost of provlchnga ny gnven level of infrastructure servtces For example,S mall ~Wmstaonnd Boswort(h1 992),F igs 8-1, 8-2, wdtatedt o 1992p nezsu singc onsumeprr ice index for all items,f rora US Bureauo f the Cen,~n(s1 993),t able 756 674 K A Small I RegwnaSl cience and UrbanE cononuc2s7 (1997) 671-691 et al. (1989, p. 53) Identify. annual cost reductmns for the U S road system, excluding bridges, that amount to $11.3 bflhon at 1992 pnces Therefore the effecuve amount of useful mfmslructure can be substanuaUy increased without necessarily increasing the long-run costs of investment 3, Fhmncially pressed mass transit Mass translt servace m the UmtedS tates, poor as it is compared to Europe. absorbs enormouss ubslches u about $13 5 b~llion m 1993, roughly a twelve-fold increase an real terms since 1970.2 Abouth aft of this increase occurred during the 1970s and was a source of local and state fiscal crises (Plckrell, 1983). Transit subslches have attracted conslderable attenuon from profess~onaA economasts, and as a dxrect result the mgredaents for understanding tbas phenom- enon are at hand F~rst and foremost, as Mohnng(1 972) has shown, public transit (like any serrate performed m batches) is subject to sharply increasing returns scale wheno ne takes into account the value to users of tugher route densxty and service frequency. If demando n a pamcular corridor nses, the transit provxder serving that comdorc an respond an one of several ways If vehacles are not fully occupied, or ff larger velucles can be operated at httie adchtmnalc ost. the provider nnght choose to handle the extra passengers samply by mamtatmngt he same routes wath the same servace frequency, allowing average cost to dechne. AltemaUvely, the provlder can increase route denslty and/or servace frequency, wbach produces cost savings to passengers m the form of less walking or wmtmg tune In eather case, total average cost (to provider and users) declines. A different way of putting the same point as that given a particular level of service, as measuredb y the density of routes and the frequency of vel~cles on a given route, handhnga n add~taonal passenger costs httle extra because it 6oes not necessitate extra vebacles or dr~ers From the point of wewo f econormct heory, thin is the primary justfficataon for transat subs~ches Nash (1988) offers a clear formal exposmono f tbas argument and an enhghtenmga pphcataon of it to pohey toward pnvauzauon of transit Thxs property of increasing returns to scale, however, greatly hmats the vaab~hty of mass transit m the UmtedS tates because populataon denslty there is so low For example, the U S populauon is about the same as the combined populaUons of Germany,I taly, the U.IC, and France, but it occupies moret han six tunes the area (U S Bureau of the Census, 1995, table 1361) It is no surprise that tbas relative 2Thefi gure quoted~ s total expensersm nuso peratingr evenues,f romU $ Bureauo f the Census (1995t,a ble 1046)a nd( 1981t,a ble 1101T) het welve-folidn crease~ s calculatedaf ter deflatingb y consumeprr ice indexf or all acres, fromU S Bureauo f the Census(1 995),t able 761 K.AS mall I RegionalS ciencea nd UrbanE conomtc2s7 (1997)6 71-691 675 abundanceo f land is reflected m lower urban densmes3. although of course bastory also plays a role m that comparison In addmont he U.S, hke other nauons, has seen the automobile capture a rapidly increasing share of traps This exacerbates the difficulty m finding comdorsw sth passenger densst~es statable for successful mass transit servsce. Fmhngt c recogmzet hese facts, polmy makers m the UmtedS tates have tried to increase tmaslt patronage by expandmgt ransit service far into suburban areas preclsely where it has the least market potential Meanwhile,t hey have failed to take full advantage of two of translt’s most natural markets (Meyer and Gomez- Ibanez, 1981, ch 3)" low-income tuner-city residents, whoh ave been relatwely neglected ~, a market, and high-income commuterst o central business &stncts, who have been served by bmldmgn ew rail translt lines, an extraordinarily expensive method m most locatmns where xt has been adopted m recent years The results have been &sappomtmngd erstup and debihtalaag subslches Furthermore, the subsldms appear to have encouraged dramatic increases m management personnel and m umon wage rates, snnultaneous with a substantml fall m labor productlwty as measured~f or example, by vehmle-hours per driver-hour (Pmkrell, 1983. Lave, 1991) One posssble response to l~gh subssdy costs is to radmall~ change the msatutlonal structure of mass transit through pnvat~zaraon Econormstsh ave taken an actsve and constwact~ve role m analyzing private markets for mass transit services and m pre&ctmgt he impacts of various proposals (see Small, 1992, pp 143-151, for a rewew) A wide variety of experiments m Bntmn, the Umted States, and elsewhere are provsdmga wealth of data to test these sdeas (Dodgson, 1991; Talvmee t al, 1991, Bamster et al, 1992, Gomez-Ibaneza nd Meyer, 1993, Wt~te, I995) Wl,ale economsstsa re far from reaching consensus on all the detzals, tbas work has narrowed the range of controversy considerably, mainly to how extens!vely and m just what contractual form private firms should be brought into the pmture. For example, debate continues on hows uccessful deregu|ataon of Bntash bus transit has been, but st is w~delya greed that it has lowered costs and that competmvet endenng for servmes, as praclaced m London, reaps manyf f not all of the cost savings of morec omplete deregulataon It ~s also w~delya greed that bus trark~at is not a perfectly contestable industry, leawaga t least somes cope for monopolyp ricing under full deregulatmn aDefimt~vceo mparisonosf urband ensmeas re Impossibled ue to the &fficulty of defining comparabuIer bana reas Onea ttempti s madeb y US Bureauo f the Censu(s1 993,t abIe 1377),w l~ch definesa n urbana reaa s a conunuobuusi lt-upa rea includinlgo catmnws lthp opulataodne nsity,a t least 5000p er squm~m aleA monthge world’s5 0 mostp opulouus rbana reas by this criterion, thosei n Europea ndt he UmteSdt ates had1 992p opulatmdne nsme(sm t housandps er square~ anle)a veraging 27.2m ad9 4, respectavelTyh ed ens~taeosf the m&vlducarel es,m d ecreasinogr dero f total populaaon, wereN ewY ork(1 1 5), Mosco(w27 8), LosA ngele(s9 1), Londo(n1 0 5), Pans( 19 9), Essen Chicag(o8 5), Milan( 13 7), St Petersburg(3 3 4), Madri3d) , Bareclona (485 ), SanF rancisco (9 4), Manchest(e1r1 2), andP tuladelph(m8