Tuesday, January 21, 2014

Economic justification for highway projects, and why the province’s tolling policy is making things worse

Last week, I posted about highway expansion in Metro Vancouver. One of the things I talked about was the need for comprehensive tolling in the region because the current piecemeal tolling policy is only shifting congestion around. But why is this?

When governments building new or expanded highways, they normally say things like “this project will bring $5 billion in economic benefit to residents in Metro Vancouver.” These large numbers are used to justify the cost of highway projects. Where do these large numbers come from? They come from a travel time benefit analysis.

The BC government claims that the Port Mann Bridge/Highway 1 project will save people up to an hour per day in commute time. To get a dollar value from time saved, a time travel benefits analysis will take 25% to 50% of a person salary and multiply it by the hours saved. For example, the median household in Metro Vancouver makes about $30 per hour. A time travel benefit analysis would value an hour of travel saving for the median household at $7.50 to $15.00 per hour.

To get big impressive numbers, governments multiplying the benefit price by number of people that use a facility. For example, if an hour of time saving was calculated as $7.50 and 30,000 households crossed the Port Mann in one day, there would be an economic benefit of $225,000 per day. Per year that would be $58.5 million. Over the lifetime of the Port Mann Bridge (40 years), the benefit would be $2.34 billion.

So when the province introduced a daily toll of $6 per day, it naively thought that people will do a time travel benefit analysis, realize they are still getting more benefit than cost, and will pay a $6 toll. Some people do, but the model assumes that all people are rational economic actors.

Of course we know that people aren’t very rational or as simplistic as economic models like time travel benefit analysis are based on. For example, people will wait in lines for hours to save a couple bucks during Boxing Day, or spend an extra hour commuting to avoid paying a toll. This would explain why the Port Mann Bridge and Golden Ears Bridge are traffic diverters. This would also explain why putting a small toll on all major crossing would actually reduce congestion more than a simple economic models would predict. What is certain is that the current piecemeal tolling policy in our region is actually making things worse.

Transportation is a complex system because it is based on human behaviour and not rational economic actors. Todd Litman has a great paper on the topic called “Valuing Transit Service Quality Improvements” which goes into more detail about what I just talked about, and talks about other factors that should be considered around transportation systems.

People value time differently. For example, I could drive to work in an hour. I choose to take transit which takes about 1.5 hours. Besides the economic saving from using transit, on transit I can write a blog post, catch up on email, or watch my favourite TV shows. I can’t do that driving. The time being on transit is more valuable to me than time being stuck in a car.

1 comment:

Bregalad said...

Commuters complain about long commutes, but then prove through actions that they value that time at a rate approaching ZERO.

Take the man who drives a large pickup truck full of tools all the way from Maple Ridge to Mission in order to avoid the toll on the Golden Ears Bridge. Doing that costs him a self reported 100 minutes per week. It gets worse. If his truck burns fuel at the same rate my brother's truck does he's spending as much on extra fuel as he'd be paying in tolls. So he could be voluntarily driving an extra 100 minutes per week for no savings at all.

Other drivers sit in traffic at the Pattullo or Alex Fraser to avoid the toll at the Port Mann. They are also burning extra fuel and taking extra time to avoid a $3 toll.

Based on the behaviour of real commuters I'd say the economic benefit of the new bridges should be revised downward by a factor of 10 to just $3/hour.

There's no real world justification for highway expansion.