Financing Transportation Networks

Financing Transportation Networks

Transport Economics, Management and Policy series

David M. Levinson

Pollution, alternative fuels, congestion, intelligent transportation systems, and the shift from construction to maintenance all call for a reconsideration of the existing highway revenue mechanisms, especially the gas tax. David Levinson explores the fundamental theoretical basis of highway finance, in particular the use of tolls, and supports that theory with empirical evidence. The author examines highway finance from the perspective of individual jurisdictions and travellers, and considers their interactions rather than specifying a single optimal solution. Congestion pricing has long been a goal of transportation economists, who believe it will result in a more efficient use of resources. Levinson argues that if the governance were to become more decentralized, and collection costs continue to drop, tolls could return to prominence as the preferred means of financing roads for both local and intercity travel. An approach that creates the local winners necessary to implement road pricing is required before it can be expected to become widespread.

Chapter 8: Finance Choice on an Interstate

David M. Levinson

Subjects: economics and finance, public finance, transport, environment, transport, urban and regional studies, transport


INTRODUCTION The previous chapter examined financing on a beltway. The model was simple in that demand was insensitive to price or travel time, jurisdictions were of specific size, jurisdictions could only cover costs, and it was solved with discrete rather than continuous mathematics (algebra rather than calculus). This chapter extends that introductory model by considering an interstate highway that covers multiple jurisdictions, each serving a local objective. As in the previous chapter, the main complication is the joint production and consumption of the key good (network services) by the jurisdiction and its residents. The network operator (’jurisdiction) makes the network available while residents consume the network for traveling. Spatial complexity in this problem ensues because jurisdiction residents use both local and non-local networks, and each jurisdiction’s network is used by both local and non-local residents. The network is not perfectly competitive and thus retains some monopoly power. The degree of locality in the use of the network directly shapes the local welfare resulting from a particular revenue mechanism, and itself is a function of jurisdiction size. The choice of financing instrument must trade off the number of spatial free riders - system users who do not pay their cost because of the location and the costs of collection. However, in this chapter, the price charged for a given instrument is limited by the elasticity of demand on those who are charged. In this chapter a model of network financing is developed which incorporates the basic features of the economic structure...

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