Transport cost analysis

The following is the chapter containing the conclusions of the Vitoria Transport Policy Institute. For the full study, go to:

Transportation Cost and Benefit Analysis II – Conclusions and Recommendations

Victoria Transport Policy Institute (

3 January 2009



11. Conclusions and Recommendations


This chapter summarizes major conclusions and provides recommendations for improving

transportation system efficiency and equity.


Chapter Index


11.1 Costs and User Pricing ............................................................................. 1

11.2 Transportation Decision Making ............................................................... 4

11.3 Equity ....................................................................................................... 6

11.4 Land Use Patterns .................................................................................... 7

11.5 Research Recommendations ................................................................... 8



11.1 Costs and User Pricing

A major conclusion of this study is that a significant portion of transportation costs are

currently either fixed or external, and so are inefficiently priced. This price structure

provides an incentive to driving more in order to “get your money's worth.” Motor

vehicle travel would decline significantly if prices reflected full costs. This overuse

reduces social welfare and economic efficiency.


Inefficient pricing squanders much of the potential benefits of motor vehicle travel.

Vehicle owners have little incentive to limit driving to trips in which benefits exceed

total costs, resulting in wasteful travel behavior that reduces transport system

performance. Underpriced driving results in congestion increasing until it constrains

further traffic growth. Problems such as pollution and community degradation are

virtually unavoidable with current pricing.


According to conventional wisdom, traffic congestion is the greatest transport problem.

This perception justifies planning and funding practices that emphasize increasing road

capacity. In the long term, however, such practices increase total traffic and automobile

dependency. According to this study, congestion is a moderate problem (cost), and efforts

to reduce congestion by increasing roadway capacity are often wasteful. As expressed by

Moore and Thorsnes,


“No rational concert promoter would decide how big to build a stadium based on the number

of people who would come to see the Grateful Dead if the tickets were free. But that is often

how transportation planners decide highway capacity: they estimate how many trips would be

made on an unpriced facility, then try to build a facility big enough to accommodate that

number of trips.”1


1 Moore & Thorsnes (1994), Transportation/Land Use Connection, American Planning Association

(, p. 57.



Transportation Cost and Benefit Analysis II – Conclusions and Recommendations

Victoria Transport Policy Institute (

3 January 2009

Page 11-2


“Raise My Prices, Please!”

There is a vivid and emotional vocabulary to describe overpricing. A consumer who paid too

much is said to have been “gouged,” “ripped off,” or “fleeced.” It is easy to demonstrate that

overpricing reduces economic efficiency and tends to be inequitable, so overpricing is a favorite

target for political campaigns, debates, and government programs.

Underpricing has similar negative impacts. Underpricing causes economic inefficiency and tends

to be unfair. It imposes social and environmental costs. But we are unlikely to hear a popular cry,

“Raise my prices, please.” Low prices may be acknowledged intellectually as a problem, but

because impacts are dispersed and nearly invisible it seldom creates emotional fervor. Educating

policy makers, planners, and the public about problems created by underpricing is a key

challenge to developing an efficient and equitable transportation system.

Although underpricing private automobile travel benefits some individuals and

jurisdictions, these are mostly transfers. Each unit of underpricing imposes an equal or

greater cost elsewhere in the economy. Underpricing encourages waste, which reduces

economic efficiency. It is often claimed that Americans (or Australians, Germans, or

other groups) have a love affair with the automobile, but high levels of automobile

dependency are partly explained by decades of underpricing and skewed investments. At

one time society may have benefited from economies of scale in vehicle and roadway

production which justified underpricing, but no longer. Increased driving incurs

diseconomies in most areas due to congestion and external impacts.

Economic efficiency, equity, and long term development are optimized if user prices

incorporate total costs. Increasing prices to better reflect costs encourages more efficient

use of our transportation system. In the long term this can reduce the need for subsidies

to transit and other special programs, due to economies of scale. In the short term,

however, in many areas increased transit investment is required to overcome decades of

under investment.

Remarkable Findings

A remarkable finding of this study is that driving would decrease significantly if a few simple

changes were made in how fees are paid, without changes in the total amount charged. For

example, typically, 20-30% of commuters will switch modes given the choice provided by

parking Cash Out, and even more if employee parking was not a tax-exempt benefit. Another 5-

15% of driving would decrease if insurance was made a variable rather than a fixed cost. These

changes would improve equity as well as reduce congestion, pollution and energy consumption,

and save individuals money.

Another important finding is that transportation investment decisions are skewed by the tendency

of planners to ignore the effects of generated traffic and external costs, which overstates the

benefits of roadway capacity expansion projects. A better accounting of costs and benefits would

result in significantly different transportation investments.

These findings indicate that some simple, incremental steps could substantially reduce many of

our current transportation problems while increasing economic efficiency and equity.

Transportation Cost and Benefit Analysis II – Conclusions and Recommendations

Victoria Transport Policy Institute (

3 January 2009

Page 11-3




Pricing recommendations:


Ideally, drivers should pay variable prices exactly equal to total marginal costs. Although

it would be difficult to create an “ideal” price structure, a number of practical measures

could greatly improve current pricing:


1. Increased fuel taxes is an easy and efficient way to internalize costs, but is not optimal as a stand-alone measure since it does not affect when and where driving occurs. A variety of charges are needed.


2. Congestion fees can improve traffic efficiency. Several charging methods are available to charge for travel on congested roads. It is important to prevent spillover onto un-tolled roads.

3. An easy way to marginalize costs is to make insurance, registration, licensing, and

vehicle taxes proportional to mileage.


4. Another effective strategy for marginalizing costs is to require employers to cash out parking subsidies. Parking should be charged daily rather than monthly so commuters who drive part-time only pay for what they use.


5. As much as possible, commercial parking should also be short term user-paid. Parking

must be managed at the regional level to prevent interjurisdictional competition, and

to prevent spillover parking problems. 6. Pricing should be used to encourage individuals to buy fuel efficient and low emitting vehicles.


There is no single solution to our current transportation problems. Neither, improved

bicycling and walking facilities, increased public transit service, “smart” highways, nor

less polluting vehicles alone can solve our transport problems while prices are so low.

Making prices reflect marginal costs is essential to encourage efficient transport. Changes

in planning, land use, and infrastructure investments are also needed. An efficient and

equitable transportation system offers users efficient mobility options and incentives to

use each mode for what it does best.

Transportation Cost and Benefit Analysis II – Conclusions and Recommendations

Victoria Transport Policy Institute (

3 January 2009

Page 11-4



11.2 Transportation Decision Making

As discussed above, improving pricing is essential but it is not sufficient to deal with the

problems we face; improved decision making is also essential. Many significant impacts

tend to be ignored during transport policy making and planning. Planning is often

uncoordinated, resulting in a “tyranny of small decisions.” Current transport planning

practices reflect five specific problems:

Limited scope. Current planning and funding practices do not provide equal consideration to

all options for meeting access needs. Demand management tends to be considered and

implemented only where traffic congestion or air quality problems are significant, and

ignored in other situations. Funding allocation tends to favor roadway expansion for private

automobiles over other modes.

External costs ignored. Current planning practices tend to ignore many costs, especially

environmental and social impacts. Economic evaluation models can, but usually do not,

incorporate monetized estimates of these costs. Even costs such as parking demand and

public service demands of increased motor vehicle use are seldom considered in

transportation planning and project evaluation.

Poor public involvement. Although transportation decisions impact many aspects of

individual and community life, transport planning is considered a technical field and the

public is excluded from many critical decisions. Residents are seldom involved early enough

in the planning process to place constraints or establish broad goals that reflect community

values, and even with citizen involvement transportation decisions are highly influenced by

professional biases and preferences.

Missing link between transportation and land use planning. Although transportation and land

use patterns are highly interrelated, they are seldom planned together. Transportation

planning should be considered a subset of land use and community development planning.

Since transport to a large degree determines long term land use patterns, transportation

decisions should be based on long-term land use goals.

Generated traffic effects ignored. Research shows that increasing road capacity increases total

driving, especially in congested areas. As a result, projects that expand urban roadway

capacity usually provide significantly less congestion reduction than predicted because latent

demand fills much of the new capacity, and automobile use and the resulting congestion

increases throughout the region.

Conventional planning tends to evaluate transportation performance based on travel

distance, which favors mobility over accessibility, faster modes over slower modes, and

speed over comfort. For example, conventional transport economic analysis can calculate

the monetized value of travel time savings from highway expantion that increases travel

speeds, but cannot provide monetized benefits from incrasing local services, improving

children’s ability to walk and cycle to schools, or from increasing the convenience and

comfort of public transit travel, for example, by providing real-time bus arrival

information or more comfortable transit stop waiting conditions


Transportation Cost and Benefit Analysis II – Conclusions and Recommendations

Victoria Transport Policy Institute (

3 January 2009

Page 11-5



Since most urban trips are relatively short (less than 5 miles), there is a “transportation

gap” caused by overemphasis on long-distance travel and too little attention to bicycling,

local transit, and low powered vehicles. This creates a self-fulfilling prophecy of

increased driving, automobile dependency, inequity and sprawl. Electric cars and other

alternative fuels reduce some external costs, particularly urban air pollution, noise, and

petroleum externalities, but do not affect others such as accident risk, congestion, and

parking subsidies.


Transportation decision making recommendations:


1. Transportation system effectiveness should be based on access. Policies and programs that reduce the need to travel should receive consideration and support equal to measures that increase mobility.


2. Transportation economic analysis must consider all costs. Non-market and indirect costs should be given the same weight as market costs. Non-market costs should be quantified and monetized as much as possible for use in economic evaluation.


3. Least-cost planning should be used as a model for transportation decision making. This means that a broad range of options are considered, including both supply and demand management, and evaluated

considering all benefits and costs. “Nobuild” options that rely on transport and land use management should receive equal consideration and funding a road building.


4. Transport system performance evaluation should be based on travel time rather than distance. This tends to increase the value of non-motorized modes, and improvements in convenience and comfort.


5. Transport planners should become familiar with the environmental and social impacts of their decisions. Environmentalists, urban planners, and social policy analysts need to learn more about transport issues.


6. Transportation equity and diversity should be recognized as important goals in planning

and policy making.


7. Non-motorized transportation modes deserve increased consideration in planning and funding. Special attention is needed for intermodal connections, such as the integration of bicycling with transit.


8. Traffic analysis must consider the effects of generated traffic. Generated traffic should be assessed using the “rule-of-half” which recognizes that these trips tend to have relatively low value, since they are trips that users forego if roads are congested.


9. The incremental external costs of generated traffic should be treated as a cost of projects that increase roadway capacity.


10. Resources currently devoted to large regional transport projects may provide greater benefit if used for local accessibility improvements. For example, improving walking and cycling facilities, local shopping districts, and services (parks, schools, etc.) can make communities more self-sufficient, reducing motor vehicle traffic and automobile dependence.


11. Transportation professionals and decision makers should make a habit of not using an automobile for at least two consecutive weeks each year in order to experience the practical problems facing non-drivers.


12. Impacts on human life and health, and irreversible environmental damage should be assessed with a ow or zero discount rate for the sake of intergenerational equity.


13. Neighborhood car rentals and ownership coops should be encouraged to help reduce the need for residents to own cars and trucks.


14. Research is needed to understand how public policies and land use patterns affect travel decisions, and to develop practical strategies and programs that achieve transportation demand reduction goals.



11.3 Equity

The information and analysis tools in this report are useful for equity analysis by

providing guidance on how benefits and costs are distributed between different groups.

More research is also needed to better define transportation equity, determine ways to

measure it, and identify how it is affected by various policies.

Pricing and planning reforms are justified for equity as well as economic efficiency

objectives. Underpriced driving is inequitable. Underpricing forces non-drivers to

subsidize automobile use, reduces travel options, and imposes land use and social

patterns that increase travel requirements. This would be unfair even if drivers and nondrivers

had comparable incomes and abilities (horizontal inequity), and is especially

unfair because non-drivers tend to be economically, physically, and socially

disadvantaged (vertical inequity).

The equity of increasing motor vehicle user prices depends on how revenues is used.

Price increases can be progressive if revenue is used to benefit low-income people. Using

road pricing revenue only for roadway transportation improvements is not necessarily

fair or efficient since driving incurs external costs borne by all of society. Investments in

alternative modes are justified on vertical equity grounds, by improving mobility options

for transportation disadvantaged groups, and on horizontally equity grounds if they help

internalize external costs.


Equity recommendations:


Many, although not all, strategies to increase transport system efficiency also contribute

to equity. Here are specific ways to support transportation equity objectives:


1. A basic level of access and mobility should be defined in each community. This might include, for example, freedom to walk safely, access to public services, employment, schools, recreation, and social



2. Transport user price increases should be predictable and gradual to allow individuals to adjust travel patterns (housing and job locations, vehicle purchases, etc.).


3. Transportation equity and option value costs should be borne by all of society, not just users of a particular mode. For example, the incremental costs of handicapped access for transit systems should not incorporated into the base price of all transit riders.


4. Transportation policies and programs should be evaluated in terms of how they affect disadvantaged groups.


5. A significant portion of revenue from increased automobile user charges should be targeted at refunds, tax reductions, and services that benefit disadvantaged people.


6. A variety of non-automotive modes should be considered to increase access and mobility of non-drivers, including walking, bicycling, ride sharing, taxies, delivery services, telecommuting, and land use pattern changes, not just transit service.


7. Transition costs associated with reduced automobile dependency and use, such as unemployment in automobile industries, should be anticipated and minimized.



11.4 Land Use Patterns

Transportation and land use are interrelated and should be considered together. Transport

decisions have substantial land use impacts and land use decisions affect travel activity.

Transportation planning decisions should reflect land use goals such as openspace

preservation, urban redevelopment and neighborhood livability. Specific transport

policies and projects should be evaluated in terms of their impacts relative to these goals.

Traffic impacts on community livability deserve special attention. The road system is a

valuable public asset. In addition to accommodating vehicle travel streets define a

community’s character, accommodate walking and cycling, and allow community

interactions. Motor vehicle traffic tends to degrade these functions. New urban

neighborhood design and traffic calming programs can reduce traffic impacts and return

streets to multi-function use. Implementing these improvements requires changes to

transport planning and funding practices.

Many of the benefits of urban-fringe development are offset by the external costs of

increased vehicle travel and land use sprawl. More efficient pricing is needed to insure

efficient land use development.



Land Use recommendations:


1. Transportation and land use planning should be integrated so policies and projects are mutually supportive.


2. Prior to developing a transportation plan, communities should establish land use and environmental goals and objectives.


3. Full-cost pricing of public services should be used to encourage smart growth.


4. Efficient parking pricing and management are needed to encourage efficient use of parking facilities and address problems such as parking spillover impacts.


5. Communities should insure that at least a portion of housing is accessible without driving to stores, employment, and other public services.


6. Zoning laws and development policies should encourage diversity of housing types, infilling and appropriate land use mixing.


7. Greater attention should be paid to streetscape design and development of local activity centers to encourage walking, bicycling and neighborhood interaction.


8. Parking requirements should be flexible, and decline when automobile ownership (for residential developments) or use (for commercial developments) decreases.


9. Zoning laws, development standards, home buyer programs, and other land use and land development policies should be modified as needed to conform with and support community transport goals.


10. Rail stations and bus route areas are particularly appropriate for mixed use communities and affordable housing.


11. Local services, such as neighborhood stores, local schools, and small parks should be encouraged to reduce travel needs.


12. Zoning and development policies that preserve greenspace and discourage urban sprawl should be implemented.


13. Traffic Calming and other traffic management strategies should be used to reduce traffic impacts and improve walking and cycling conditions.




11.5 Research Recommendations

More research is needed to better estimate transportation costs under various conditions

and locations. Transport equity and diversity appear to be significant values which

deserve more research. Decision-makers need better information on consumer demands,

such as the value people place on improved travel convenience and comfort. Research is

also needed to evaluate the synergistic effects of combined planning decisions.

Transportation land use impacts need more research to understand how transport

decisions affect land use, and methods to measure and monetize these effects. This

research should cover impacts to both natural environments, such as the loss of wildlife

habitat and landscapes, and impacts on the built environment, such as the degradation of

neighborhood life from high traffic volumes. These appear to be significant costs with

major implications for many transport decisions.


The barrier effect (severance) has been studied and measured in Scandinavian countries,

but their quantification techniques have not been applied to the same degree in North

America or other areas of the world. Research is needed to test the Scandinavian

formulas here and develop estimates of this cost per vehicle mile under a variety of



Latent demand has important implications on transport decisions. Some progress has

been made to develop tools for predicting generated traffic. More information is needed

to predict generated traffic under typical conditions. Most current studies focus on traffic

generated on single roads. Of equal or greater importance is the overall increase in

regional automobile use that results from increased road capacity.





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