Government Failure in Urban Transportation

This paper assesses governmental performance in its investment, provision and regulation of urban transportation. Attention is given to public bus and rail transit and road transportation. Evidence based on urban transport in US cities reveals substantial allocative and technical inefficiencies that have led to large public transit deficits and severe highway congestion. I argue that it is futile to expect public officials to remedy the situation by pursuing more efficient policies such as congestion pricing and weighing costs and benefits when deciding transit service. The problem is that urban transportation policy is largely shaped by entrenched political forces that inhibit constructive change. The only realistic way to improve the system is to shield it from those influences and expose it to market forces by privatising it. This position is supported by empirical evidence based on simulations for the US and the UK’s early experience with privatisation.

You Can't Get There From Here: Government Failure in U.S. Transportation

Consumers, firms, and government spend $1.3 trillion on transportation, which accounts for roughly 17 percent of U.S. GDP. Transportation also absorbs about$1.2 trillion in travelers' and shippers' time--a valuable commodity excluded from GDP. Ttransportation policy is an important means for government to exert its influence on the economy. From regulating international air fares to providng bus service to owning and operating the roads, the government's presence in the U.S. transportation sector is pervasive. This paper argues, however, that the government's extensive involvement in transportation is undesirable and that it should greatly reduce its role in all aspects of transportation. By repeatedly failing to enact efficient policies to allocate transportation resources and by rigidly pursuing policies that have undermined the efficiency of every transportation mode and the welfare of most users--especially those with the lowest incomes---policymakers have assured that government failures are compromising the performance of the U.S. transportation sector far more than market failures. By ridding the transportaton sector of most observable government failures and by allowing innovation and state-of-the-art technology to flourish free of government interference, the private sector can vastly improve transportation and thereby advance our standard of living. The only real uncertainty is how long policymakers will resist change.

How efficient is current infrastructure spending and pricing?

Infrastructure (Economics) ; Finance ; Pricing ; Public policy

US Highway Privatization and Heterogeneous Preferences

Abstract: We assess the welfare effects of highway privatization accounting for government’s behavior in setting the sale price, firms’ strategic behavior in setting tolls in various competitive environments, and motorists’ heterogeneous preferences for speedy and reliable travel. We conclude motorists can benefit from privatization if they are able to negotiate aggressively with a private provider to obtain tolls and service that align with their varying preferences. Surprisingly, motorists are likely to be better off negotiating with a monopolist than with duopoly providers or under public-private competition. Toll regulation may be counterproductive because it would treat motorists as homogeneous. Revised June 2009.Security Breach Costs; Financial Distress; Insurance; Resource Allocation.

The Effect of Government Highway Spending on Road Users' Congestion Costs

Policymakers attempt to reduce the growth of congestion by spending billions of dollars annually on our road system. We evaluate this policy by estimating the determinants of congestion costs for motorists, trucking operations, and shipping firms. We find that, on average, one dollar of highway spending in a given year reduces the congestion costs to road users only eleven cents in that year. We also find that even if the allocation of spending were optimized to minimize congestion costs that it still is not a cost-effective way to reduce congestion. We conclude the evidence strengthens the case for road pricing.

Fundamental Flaws of Social Regulation: The Case of Airplane Noise

The growing concern about the cost-effectiveness of social regulations has spurred Senators Fred Thompson and Carl Levin to introduce legislation requiring federal regulatory agencies to conduct a cost-benefit analysis of every regulation with an annual economic impact greater than $100 million. But while this legislation appears to be a step in the right direction, it fails to address an issue that is even more important than the balancing of regulatory costs and benefits. The fundamental economic criteria for evaluating any public policy is whether it maximizes social net benefits. Given that social regulations are, in principle, designed to reduce welfare losses caused by externalities or threats to human health and safety, the first step for regulators is to know whether the (alleged) market failure is sufficiently costly to justify government intervention and whether a proposed regulation is the most efficient way to correct the market failure. The paper studies the regulatory battle over airplane noise to illustrate how addressing these questions can improve regulatory policy by targeting government action where it is needed. The 1990 Airport Noise and Capacity Act (ANCA) mandated the elimination of certain (Stage II) aircraft at all U.S. airports by the end of 1999. The ANCA therefore affected aircraft design and generated benefits to homeowners who live in areas affected by airplane noise, but it has also generated costs to airlines by reducing the economic life of their capital stock. Surprisingly, analysts have not addressed the basic question of whether the benefits of the ANCA, arguably the most important piece of airplane noise regulation to date, exceed its costs. Our own cost-benefit analysis of the ANCA finds that its$5 billion (present discounted value) in benefits fall considerably short of its $10 billion costs. More fundamentally, we find that the net benefits that could have been generated even by an economically optimal airplane noise tax amount to only$0.2 billion (present value). Just as the ANCA has done, an optimal noise policy would transfer wealth from airlines and travelers to homeownersCalthough to a much smaller extent. It appears that current FAA noise regulations have generated substantial costs to society when, in fact, there was little justification on efficiency grounds for any regulatory intervention in the first place. A solid analytical foundation for social regulation will preclude criticism of its cost-effectiveness.

Markets helped us get through the pandemic — let them do their job

The private sector has been indispensable during the pandemic — developing vaccines, enabling us to continue working remotely, and adapting supply chains to home delivery. Clifford Winston (Brookings Institution) says governments must recognise and stop impeding their contribution

An Exploration of the Offset Hypothesis Using Disaggregate Data:The Case of Airbags and Antilock Brakes

The offset hypothesis predicts consumers adapt to innovations that improve safety by becoming less vigilant about safety. Previous tests have used aggregate data that may confound the effect of a safety policy with those consumers who are most affected by it. We test the hypothesis using disaggregate data to analyze the effects of airbags and antilock brakes on automobile safety. We find that safety-conscious drivers are more likely than other drivers to acquire airbags and antilock brakes but these safety devices do not have a significant effect on collisions or injuries, suggesting drivers trade off enhanced safety for speedier trips.

Last Exit: Privatization and Deregulation of the U.S. Transportation System

In Last Exit Clifford Winston reminds us that transportation services and infrastructure in the United States were originally introduced by private firms. The case for subsequent public ownership and management of the system was weak, in his view, and here he assesses the case for privatization and deregulation to greatly improve Americans’ satisfaction with their transportation systems. Chapters 1 and 5 are included here as a preview.

Differentiated Road Pricing, Express Lanes and Carpools: Exploiting Heterogeneous Preferences in Policy Design

In the face of rising congestion on the nation's road system, policymakers have explored ways to reduce travel delays. One approach has been to allocate reserved lanes, called high-occupancy-vehicle (HOV) lanes, to vehicles carrying two or more people. A recent innovation is to allow solo drivers to use the HOV lanes if they pay a toll. These so-called high-occupancy-toll (HOT) lanes can be found in Los Angeles, San Diego, Houston, and Minneapolis and are under consideration in several other urban areas. In this paper, we argue that HOV and HOT lanes sacrifice efficiency by failing to price all lanes.Moreover, we show that it is possible to set prices on all lanes that improve on the efficiency of HOV and HOT policies and by catering to motorists' varying preferences, can meet the test of political acceptability.