Article

Financing Road Infrastructure by Savings in Congestion Costs: A CGE Analysis

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Abstract

Division of labor, outsourcing in manufacturing and just-in-time production require the provision of a good and sufficient road infrastructure system. The society is used to mobility, preference for it even increases, and the full benefit of competition can only be realized if special distances can be overcome at low cost of transportation. Since the 1970's, however, the negative aspects of an intensive extension of road infrastructure has dominated the political decision process in Germany. The objective of this paper is to model the aspects of bottlenecks in road infrastructure, of congestion costs and of the effect of investment in infrastructure in a computable general equilibrium framework. A long-run "business as usual" simulation will show how congestion and its cost will develop over time. The increasing costs of congestion indicate a necessity to act. We will therefore raise the fuel tax to partly finance infrastructure investment. We will then compare the cost of the addition in infrastructure with the savings in congestion costs in order to see whether this policy measure is self-financing.

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... Kim and Hewings (2009) a Infrastructure investment/financing . Conrad and Heng (2002) . Conrad (1997) . ...
... Haddad, Hewings, Porsse, Van Leeuwen, & Vieira, 2015;Anas & Liu, 2007;Schaefer & Jacoby, 2005;Kim et al., 2017;Rutherford & van Nieuwkoop, 2011;Kim & Hewings, 2003; RAEM model (Knaap, Oosterhaven, Ruijgrok, & Tavasszy, 2001); PINGO model (Vold & Jean-Hansen, 2007)), while others have represented the transportation system within the CGE model by a set of simpler equations (e.g. GTAP (2017); Seung & Kraybill, 2001;Conrad & Heng, 2002;Conrad, 1997; MONASH model (Adams, Horridge, & Parmenter, 2000); CGEurope (Bröcker, 1998c)). The complete representation of the transportation network comes at the cost of computational complexity and the additional efforts required for linking it to the CGE model. ...
... 2015),Conrad and Heng (2002)*,Conrad (1997)*, Mayeres (2000*,Mayeres and Proost (2001),Kim (1998), Hadj-Salem et al. (2016), Gallen and Winston (2016), Mayeres (2001)*, Steininger et al. (2007)*, Van Dender (2003)*, Parry and Bento (2001)*, Siegesmund et al. (2008), Tscharaktschiew and Hirte (2012), Rioja (1999)*, Imdad and Westin (1998), Nordman (1998), Chen et al. ...
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... For example, the OECD in the early 1990s attempted to extensively calibrate effects of stabilization and structural adjustment policies on the income distribution in Chile, Cote d'Ivoire, Indonesia, Malaysia and Morocco using a common CGE model. Also, the CGE model has been used to assess the longterm effects of transportation investments, and is classified into (1) the cost-based approach and (2) the network-based approach of spatial accessibility in terms of selection of transportation policy variables for the economic model. 1 Until the early 2000s, the cost-based approach was prevalent in exploring the impacts of transportation infrastructure investment on economic growth, and was again disaggregated into (1) productivity method and (2) congestion cost method (Brocker, 2002;Conrad, 1997;Conrad & Heng, 2002;Friesz, Suo, & Westin, 1998;Haddad & Hewings, 2001;Kim, 1998;Rioja, 1998;Roson & Dell'Agata, 1996;Seung & Kraybill, 2001). In the productivity method, Roson and Dell'Agata (1996) showed that an increase in transport investment would reduce both traffic congestion and the gap between the user optimum and system optimum. ...
... Conrad (1997) measured the optimal size of the infrastructure in terms of productivity effect and congestion costs, and Seung and Kraybill (2001) found that the magnitude of the effect of the public investments depended on public capital elasticity, public capital stock, per-capita stock of private capital, and the congestion level. Conrad and Heng (2002) developed a road congestion CGE model using road bottlenecks and congestion cost functions, and showed that the effective transportation services were determined through the optimal allocation of transportation capital from the minimization of total transportation costs and congestion costs. Berg (2007) linked a household demand function for transport services with a stylized environmental CGE model in order to estimate the impact of a carbon target on the Swedish economy. ...
... Cost-based approach Productivity method Roson and Dell'Agata (1996), Kim (1998), Haddad and Hewings (2001), Brocker (2002) Congestion cost method Conrad (1997), Seung and Kraybill (2001), Conrad and Heng (2002), Berg (2007), Koike et al. (2015) Network-based approach Haddad and Hewings (2005), Kim et al. (2004), Haddad and Hewings (2005), Kim and Hewings (2009), Haddad et al. (2010), Kim et al. (2011) economic benefits and costs of transportation infrastructure. This paper showed that the growth effect of transportation investment would be maximized if regulations on inflow of foreign capital to the private sector were lifted. ...
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... The expenditure on water transport by all the three users increases with significant decline in prices. This proves the argument made by Down that better infrastructure provision generate additional demand [Conrad and Heng (2006)]. Though this statement is made for land transport, but this can be applied to other mode of transportations. ...
... This cost accrues largely because of low investment in signs and driving skills and this can only be reduced by improved management. Capital used in transport Capital without transportation capital Labour KT e +1 Effective transportation capital services KT e depending on Congestion Z by KT e = KT.Z KT ez where KT Source:Conrad and Heng (2006). ...
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... The B-MARIA model calibrated the transportation cost of moving products by origin and destination, and estimated spatial price differences using a mark-up structure. Conrad & Heng (2002) compared the infrastructure investment expenditure with the savings in congestion costs over a period of 10 years, using a CGE model with 18 industries. The potential savings in congestion costs by ¤15.5 would result from ¤7.5 of the investment expenditure in 10 years under the financial restriction, if 40% of the infrastructure expenditure were financed by an increase in the fuel tax. ...
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... A more explicit treatment of transportation activities is provides by RAEM (ivanova and alii, 2007), which includes a sector devoted to transportation of goods. A more developed solution is proposed by Conrad and Heng (2002), who include four sectors devoted to transport activities and transport inputs used by the other sectors; however, they focus on transport of goods only. RAEM also explicitly takes account of passengers transport, and it is one of the very few models including this dimension. ...
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... The multiregional CGE model estimates the economy-wide impacts of the highway development on the spatial economies at a five-region division (Seoul MA, Daejon MA, Kwangju MA, Daegu MA, and Busan MA) of the country. As discussed in , a sizable body of literature has explored impacts of transportation infrastructure investment on economic growth using a CGE model (Buckley, 1992;Roson and Del'Agata, 1996;Roson, 1996;Kim, 1998;Rioja, 1998;Friesz et al., 1998;Miyagi, 1998;Seung and Kraybill, 2001;Haddad and Hewings, 2001;Conrad and Heng, 2002;and Brocker, 2002). The framework of the multiregional CGE model in this paper is the same as the model of with two differences, (1) in the regional classification and (2) in the specification of interregional trade. ...
... Most computable general equilibrium (CGE) models considering transportation focus on congestion costs and tolls imposed to internalize external time delays (e.g. Anas and Xu, 1999;Anas and Rhee 2006;Conrad and Heng, 2002), though there are papers on carbon taxes (e.g. Berg, 2007), other environmental taxes (e.g. ...
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... The literature on regional cge models is thematically diverse, but less plentiful. 1 Recent research includes the work of Julia-Wise, Cooke and Holland (2002), who analyse property taxes in the state of Idaho; Miguel-Vélez, Cardenete and Pérez-Mayo (2009), who study a rise in fuel taxes; Rickman and Snead (2007), who examine the growth and equity effects of subsidies to formal childcare for low-income families; Liu (2006), who deals with the economic repercussions of building an industrial science park in the south-eastern region of Taiwan; Conrad and Heng (2002), who discuss the role of public infrastructure in regional growth; Seung and others (2000), who evaluate the repercussions of reallocating water between the farming and tourism sectors; Patriquin and others (2002), who use an environmentally extended model incorporating natural capital in a region of Canada; Giesecke (2002), who identifies the causes of growth ...
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... In contrast, the transport related CGE literature mainly focuses on a detailed representation of different externalities and the evaluation of road pricing approaches and infrastructure investments (e.g. Meyeres and Proost, 1997; Parry and Bento, 1999; Conrad and Heng, 2002; Kalinowska et al., 2007). Recently there have been some studies analyzing the effects of carbon pricing in the transport sector with both, a detailed representation of electricity production and transport. ...
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... In both cases, if markets are imperfect or if distributional impacts are a concern, computable general equilibrium (CGE) analysis, pioneered by Shoven and Whalley (1992), is an appropriate tool for transport project evaluation (Bröcker, 2004;Bröcker and Mercenier, forthcoming;Conrad, 1997;Conrad and Heng, 2002). In a general equilibrium model, all prices and quantities react to the primary cost change resulting from an infrastructure investment. ...
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Critical infrastructure systems provide essential services for economic prosperity and a good quality of life. Over time, they have become increasingly interdependent on each other at multiple levels. Under ordinary conditions, these interconnections enhance the overall performance of the infrastructure and can accelerate the transition to “smart cities”. However, in the case of extreme events, interdependencies introduce additional vulnerabilities that can lead to cascading failures and delays in restoration activities. Consequently, better understanding of the interdependencies among critical infrastructure systems and an objective way to model them are important to support planning, design, maintenance, and emergency decision-making, especially if disaster resilience is the ultimate focus. Since resilience is a systemic property, any model that addresses the various infrastructure sectors independently is likely to yield inaccurate predictions. This chapter provides a comprehensive review of available methods to model infrastructure interdependencies for researchers, practitioners, and administrators who are interested in the quantification, prediction, and enhancement of disaster resilience. Current implementations of dependency and interdependency are mainly realized through dependency tables and interaction rules. Within every major implementation category, detailed classifications of modeling methods are described. For each classification, we discuss fundamental assumptions, computational implementation, most suitable areas of application, advantages and limitations. We then review how various computational frameworks and tools implement different interdependency models for community resilience assessments, followed by future directions for research and practice.
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The paper uses a computable general equilibrium (CGE) model for a small city to examine how expansions in export and local sectors, changes in total factor productivity (TFP), and growth in population impact an economy. We examine the effects of each source of growth and find that the level and distribution of economic activity vary considerably. We also evaluate each source of growth in the context of a variety of policy metrics, which provide guidelines to policy makers, including the types of firms to be recruited in specific regions.
Article
This paper examines the role of success in public-private partnerships (PPPs or P3s) through the case of the Port of Miami Tunnel. Trends in infrastructure procurements within the USA have begun shifting with public-private partnerships becoming a more popular option for public agencies. These partnerships create a direct line for private sector investment into public asset-based projects while providing the public agency with an alternative means to finance projects which were once thought too costly for the agency or traditional contracting out models of procurement. The case study is analysed through the scope of a previously established model of success in P3 contracts with future implications of this contract discussed.
Chapter
A computable general equilibrium (CGE) model is a type of economic model which can reveal the information on the whole economy as well on detailed industries. CGE modelling appeared in the early 1980s and is now widely used for economic analysis and policy assessment. This chapter briefly introduces CGE modelling and includes its history, its main elements, the types of CGE models, and the acceptance and evaluation of CGE modelling.
Article
The subject author indexes list all articles and comments published in the 2002 issues of the included journals. The subject index is arranged alphabetically by author within eighty-six subject categories. Articles are listed in only one category, so readers are advised to examine the listings in categories related to their primary interests. The subjects are listed in Tables 1 through 4, following the list of journals.
Article
Full-text available
The purpose of this paper is to present and apply a simple framework for studying optimal prices and regulations for passenger and freight transport, taking into account the heterogeneity of transport services, and capturing all major external costs, viz. congestion, air pollution, accident risks, and road depreciation. Based on a straightforward theoretical structure a simulation model is developed in which the heterogeneity of transport services (various modes, periods, fuel types etc...) is captured through the use of nested-CES utility and production functions. The authority chooses optimal taxes and decides which technologies have to be implemented from a social welfare viewpoint. In a first application of the model we consider both optimal pricing policies and the desirability of introducing improved engine technologies in cars. The results suggest that substantial welfare gains could be realised. Moreover, they clearly illustrate the importance of the set of instruments available to the government. For example, the absence of a toll or road pricing system that allows differentiation between peak and off-peak periods reduces the potential welfare gain of pricing policies by some 60%.
Chapter
Transportation fulfils a double role in an economic system; it is an economic sector which, just like any other sector, aims to maximize its performance, while it is also a necessary production factor allowing for commodity trade and human mobility. Transport in the latter capacity — in terms of both transportation services and infrastructure provision — needs to be produced by means of scarce inputs, and hence can be cast in the framework of a generalized production function approach. It is somewhat surprising that transportation has received insufficient attention from the perspective of general equilibrium analysis in economics, as only such an approach can consistently address the economy-wide character of the impacts of transportation as well as its negative external effects. The latter include both system-wide environmental and health effects and transportation-specific congestion and safety effects. In contrast to analyses of a partial nature, it seems clear that an economy-wide perspective cannot easily be regarded as flawless when space is assumed away, as this would essentially mean that one assumes that movement of goods can be realized without transportation costs. In most of the analytical literature however, even less attention has been devoted to the fact that these costs are, in turn, affected by various factors, such as input prices of transportation, spatial demand for transportation services, and the presence of transportation-induced externalities such as congestion.
Article
This paper analyzes the second-best pricing and investment rules to be followed in the transportation industries in the presence of intermodal competition, exogenous price distortions, and financing constraints, using both theoretical and simulation analysis. It shows that price distortions and financing constraints in one mode will not only affect the investment rules in that mode, but will also affect the pricing rules and investment decisions in all other modes. While the theoretical discussion indicates that the second-best pricing and investment rules are quite complex, the simulation analysis indicates that the benefit function is relatively flat, suggesting that the costs of using simpler first-best rules may be relatively small.
Article
In Europe traffic congestions make it impossible to estimate travel time. The increasing number of cars calls for a transportation policy towards an improved efficiency of the transportation system. However, extending road infrastructure to reduce the congestion externality implies another type of externality, air pollution. Designing a transportation policy in industrialized countries one has to consider this trade-off. Our objective is to investigate the role of transportation services and their pricces within an interindustry framework. The authority wishes to minimize total cost of production with respect to the provision of infrastructure subject to an emission standard. By omitting a financial constraint to finance infrastructure we determine the size of infrastructure where no congestion occurs. The productivity effect of infrastructure and the cost savings from a dissolved congestion determine the optimal stock of infrastructure. Our congestion index is unity in that case of no financial constraint. If the extension of infrastructure has to be paid for by taxation, we obtain a lower level of infrastructure. In view of the trade-off between the benefit of a productivity gain from a dissolved congestion and the deadweight loss from taxation this lower level of infrastructure will result in an index of congestion higher than unity, implying a negative externality to the economy.
Article
This paper introduces a multiregional, multiproduct, household interactive, variable input-output (MMHIVIO) model. The MMHIVIO model is a general equilibrium model which captures the interactions and the optimizing behavior of consumers and producers in the space economy. It is not only consistent with the theories of consumer and producer behavior, it also makes it relatively easy to solve because it reduces to several blocks of linear systems of equations. The model is used to evaluate the economic effects of the Ohio River Navigation System.
Article
The objective of this paper is to give a survey of the theory and application of computable general equilibrium models (CGE-models) in environmental and resource economics. Although CGE models cannot be used to forecast business cycles, they can indicate likely magnitudes of policy-induced changes from future baselines, and they are indispensable for ranking alternative policy measures in environmental policies. The paper emphasizes the important of general versus partial equilibrium models and the advantage of CGE models compared to other macroeconomic models and standard input-output models. It presents models of producer and consumer behavior, of technical change, of abatement technologies and of trade. It also presents several simulation studies in environmental economics based on the use of CGE models. It reviews environmentally related CGE analyses on topics such as global warming, the costs of environmental regulation under different instruments and the double dividend issue. It finally describes some models which look at a two-way link between the environment and economic performance.
Article
Optimal government policy is considered in a second-best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows the authors to study the interaction between externality taxes and public abatement. Copyright 1997 by The editors of the Scandinavian Journal of Economics.
Entwicklung des Personenverkehrs in Deutschland, DIW-Wochenbericht: 22/94
DIW (1994) Entwicklung des Personenverkehrs in Deutschland, DIW-Wochenbericht: 22/94. Berlin, 365-374.
Neue Technologien – Basis für Wohlstand und Beschäftigung
  • Wirtschaft Bundesministerium Für
Bundesministerium für Wirtschaft (1997) Neue Technologien – Basis für Wohlstand und Beschäftigung. Bonn.
Abschätzung der volkswirtschaftlichen Verluste durch Stau im Verkehr, Studie im Auftrag der Bayerischen Motorenwerke
  • D Frank
  • J Sumpf
Frank D and Sumpf J (1997) Abschätzung der volkswirtschaftlichen Verluste durch Stau im Verkehr, Studie im Auftrag der Bayerischen Motorenwerke. München.
Verkehrsinfrastrukturinvestitionen im Wachstumsprozeß entwickelter Volkswirtschaften
  • G Aberle
Aberle G (1996) Verkehrsinfrastrukturinvestitionen im Wachstumsprozeß entwickelter Volkswirtschaften. Oldenburg, Düsseldorf.
  • Bundesverband Güterkraftverkehr
  • Logistik
  • Entsorgung
Bundesverband Güterkraftverkehr, Logistik und Entsorgung (1999) [BGL] Jahresbericht 1998/1999. Frankfurt/Main.