Economic Implications of Traffic Congestion Glen Weisbrod Economic

Economic Implications of Traffic Congestion Glen Weisbrod Economic Development Research Group, Inc. 2 Oliver Street, 9 th Floor Boston, MA 02109 www. edrgroup. com

Overview: Themes & Issues Themes Ø Over-simplification. We simultaneously over- and underestimate congestion impacts by failing to recognize differences among locations and elements of the economy. Ø Problematic distinctions. Analysis is made more difficult by distinctions between people, business and government. Issues Ø What is it? …… Ø Who cares? …. Ø Why worry? …. Ø What can I do? How do we view congestion? How does it affect peoples lives? Implications of scenarios? Applying benefit-cost analysis.

What is Congestion ? Different Motivations & Measures Motivations Ø Ø Transport Efficiency Local Economy Measures Throughput: LOS, Volume, Speed Income, Cost of Living: Jobs, Income, Taxes Ø Environmental Impact Quality of Life: Frustration, Air Quality

What is Congestion? Different Perspectives Traffic Engineering Perspective Ø System throughput is degraded So What! Consumer Perspective Ø Wasting time, $$, diminished accessibility to shopping, recreation, job alternatives Business Perspective Ø Wasting time, $$, diminished accessibility to labor, customer, supplier markets We do care about these two!

How are people affected? Time and Costs Impacts Aspects of Congestion Ø Longer average travel times Ø Greater frequency of incident delays over-rated under-rated Implication for the Economy Ø Increased payroll to offset commute costs Ø Increased payroll for more drivers, longer hours* Ø Higher vehicle operating costs* Ø Excess production, spoilage, processing costs* Ø Schedule padding due to possibility of incidents* * Freight costs accrue to the true users: shippers and receivers

How are people affected? Examples of Business Impacts 1. Overnight Delivery Services – require earlier pickup deadlines, allow for fewer deliveries per driver 2. Concrete mixer trucks – shrink delivery area or allow for more spoilage 3. Manufacturers – pay overtime for processing deliveries, accept delays for just-in-time production ØShippers, Air/Water Ports, Railroads – miss deliveries (outside of acceptable times) or pad schedules

The view of economic geography Why care about accessibility? Economic Geography… Urban agglomerations, large cities are due to economic benefits of accessibility For some businesses… Scale economies from clustering similar & complementary businesses; access to larger, more diverse customer, labor, supplier markets For some consumers… Benefits of opportunities for cultural, recreational, shopping, job alternatives

The view of economic geography How congestion affects access Besides using up time and money… Congestion reduces accessibility and its benefits For some businesses… Reduced scale economies from access to diverse customer, labor, supplier markets For some consumers… Reduced benefits from access to cultural, recreational, shopping & job alternatives

How do businesses react? Results of Business Surveys Prior NCHRP Study: Ø Ask businesses in areas of growing congestion about problems caused by congestion Ø Result: “self-selection bias” • Only the Survivors are left; We can’t find those that closed or moved away • Those who are left either thrive under congestion or have adjusted* to it *adjustments include changes in delivery area, times and drivers

How do businesses react? Typology of Business Impacts New NCHRP Study: Ø Classify businesses & production functions based on technology, products, markets (Chicago, Philadelphia) Ø Result: differential sensitivity • Some businesses thrive in high-density districts (tourism attractions, financial centers, restaurants) • Other businesses depend on wide customer and delivery markets with reliable production and delivery scheduling (specialty products & services)

Implications of Scenarios… Nature of Business Adjustments Elasticity of Substitution Among Inputs… Ø Most cost sensitivity & substitutability for homogenous skill occupations (sales, guard, clerical, cleaning jobs) and commodity products (foods). When congestion grows, businesses substitute closer sources. When congestion is reduced, markets expand longer trips are induced. Ø Least cost sensitivity & substitutability for specialized skill occupations (executive, management, precision trades) and differentiated products (manufacturing). They draw from wider markets, so businesses pay costs for maintaining access to them. When congestion is reduced, those businesses save the most.

Sensitivity to Congestion Cost, by Occupation

Concentration of Business, by Location in Urban Area

Implications of Highway - Economic Models… Examples of Alternative Scenarios (Chicago and Philadelphia test studies) Ø Truck Delays in the Downtown Office District. Impact is concentrated in CBD, due to dependence on incoming supplies and relatively little outgoing deliveries. Ø Truck Delays in Industrial Zone. Impact is widely distributed throughout the metro area, due to broad pattern of truck delivery patterns to/from the zone. Ø Commuting Delays Region-wide. Impact is greatest for businesses on periphery of metro area, due to longer commuting and delivery times there.

To assess congestion effects Cost-Benefit Analysis In its fundamental form, CBA… Ø Lines up (compares) all benefits and costs Ø Can measures money impacts as well as non-money impacts (including quality of life, environment)* Ø Can recognize equity (distribution of positive and negative impacts) as well as efficiency (overall net impact) * using revealed preferences such as property values, stated preferences such as willingness to pay or tradeoff analysis

How do economic impacts fit in ? Economic impacts of congestion span consumer and business sectors. They affect availability & diversity of jobs, shopping & recreation opportunities for people, as well as their disposable incomes and cost of living. All of this is part of the quality of life. Consider all impacts in terms of how they affect people. Then we can see economic, environmental and social impacts as quality of life tradeoffs, rather than pitting residents vs. business vs. government.

Documents on the Web Library of Economic Impact Studies www. edrgroup. com/pages/library. html NCHRP Report 463, Economic Implications of Congestion www. edrgroup. com/pages/n 15. html "Benefit Cost Analysis Policy Issues in the Era of TEA-21" www. edrgroup. com/pages/pdf/TEA 21 -BC 2001. pdf