Economics of Congestion

1. Economics of Congestion Jagadish Guria Presentation to the the 8th Annual New Zealand Transport Summit 25 February 2008

2. Costs of congestion • Land Transport New Zealand website indicates the cost of congestion in New Zealand is about $1 billion per year, based on a MOT study on Transport Costs and Charges • This also notes that congestion has remained relatively unchanged from 2003 to 2006 in Auckland, Tauranga and Wellington but has increased in Chirstchurch • This is based on value of travel time increase and its reliability

3. Outline • Causes of congestion • Management of congestion

4. Causes of congestion • Temporal vs. Sporadic • Demand and supply Pricing • Land use distribution • Public transport

5. Demand and supply

6. Public transport • Public transport • Physical Accessibility • Convenience (travel time, comfort, frequency) • Fare

7. Land use distribution • Congestions during peak period are usually dominated by trips to and from work, particularly on highways • Congestion within CBD areas are usually due to work trips, i.e., travelling for work related activities • Both these factors, particularly the first one is influenced by land use distribution – where people live and where they work

8. Land use transport link • Land use distribution and transportation are linked – each influencing the other • Low density residential development is to a large extent the effect of the transportation system including the pricing system • Also land use distribution generates demand for specific types of transport • Low density urban fringe development increases demand for car travel and parking space • High density development makes public transport more attractive, accessible and affordable

9. Management of congestion • Network expansion • Demand management • Pricing • Public transport • Density and topography • Busways, HOV lanes, HOT lanes

10. Network expansion • Network expansion – often considered the solution to congestion problems • The likely increase in severity of crashes and the total social cost is often not considered in benefit cost analyses • Capacity expansion generates its own demand

11. How expansion works

12. Public transport • An increase in the accessibility of public transport is expected to have an impact on congestion • Quality of service • Travel time • Frequency of service • Comfort • Fare

13. HOV lanes • Other traffic management options include • Busways • High occupancy vehicle (HOV) lanes • High occupancy toll (HOT) lanes

14. Efficient pricing • Congestion charge is part of an efficient pricing system • Congestion charges are not widespread due to theoretical and political reasons • The estimated efficiency benefit depends on how realistic are the features of the models used – most studies indicate positive welfare gains • Welfare effect: • economic benefit is expected to be higher with congestion price than without • depends on whether revenue from congestion tolls is returned to road users • depends on how congestion price redistributes the welfare from road users to other members of society

15. Integrated approach

16. Conclusions • Congestion is likely to be the effect of a non-optimal pricing system • It would be lower if prices signalled the value of the road network at the specific place and time • Network expansion is often chosen as the solution • Congestion may appear soon if pricing system is not changed • All relevant options should be considered before a decision on expansion is made