Transport economics

Major Themes

City

Agglomeration Economies and Wider Economic Benefits of Mobility

A key feature of the distribution of economic activity is a tendency towards spatial concentration, or agglomeration. We can observe this phenomenon at the level of cities, which contain vast concentrations of economic activity despite high land prices, rents and other costs. We can also observe forces of agglomeration at an industrial level, for instance in the spatial concentration of financial sectors in Wall Street or the City of London; or in the co-location of information technology firms found around Silicon Valley. Economic theory states that both forms of agglomeration are driven by spatial externalities, or what are termed agglomeration economies.

Transportation and particularly transport improvements can increase the scale of potential economic interactions available in the economy, with implications for the relative level of agglomeration experienced by firms. This increased level of agglomeration is associated with a shift in the productivity of existing firms and workers, or by attracting new firms and private sector investment.

Researchers involved: Daniel J Graham, José M. Carbo, Csaba Gábor Pogonyi, Ana Teresa Vargas Frutos

PT

Public Transport Economics

Public transport is an important element of urban mobility due to the inherent scale economies that shared vehicles provide. However, the degree to which urban governments should subsidise this mode of transport, the optimal intensity of supply, and fares that passengers have to pay for this service, are often subjects of heated public debates. Applied welfare economics can help overcome the critical questions in public transport policy. The main of public transport economics is to create reliable models of social benefits and costs borne by operators, passengers, travellers of alternative modes, and the rest of society. Such models allow us to investigate the balance between social costs and benefits, and derive pricing rules that provide the best incentive for users and ensure the efficient utilisation of the available resources.

The TSC is in contact with more than a hundred public transport operators globally, primarily through their participation in benchmarking consortia. Therefore, it is one of our research group’s core responsibilities to advance our understanding of the mechanics of the fundamental trade-offs in public transport supply. 

Researchers involved: Daniel Hörcher, Daniel J. Graham, Richard Anderson, Anupriya, Praj Xuto

Key Publications

  • Barzin, S., D'Costa, S., & Graham, D. J. (2018). A pseudo–panel approach to estimating dynamic effects of road infrastructure on firm performance in a developing country context. Regional Science and Urban Economics, 70, 20-34.
  • Hörcher, D., & Graham, D. J. (2018). Demand imbalances and multi-period public transport supply. Transportation Research Part B: Methodological, 108, 106-126.
  • Hörcher, D., Graham, D. J., & Anderson, R. J. (2017). Crowding cost estimation with large scale smart card and vehicle location data. Transportation Research Part B: Methodological, 95, 105-125.
  • Melo, P. C., Graham, D. J., & Brage-Ardao, R. (2013). The productivity of transport infrastructure investment: A meta-analysis of empirical evidence. Regional Science and Urban Economics, 43(5), 695-706.
  • Melo, P. C., Graham, D. J., & Noland, R. B. (2009). A meta-analysis of estimates of urban agglomeration economies. Regional Science and Urban Economics, 39(3), 332-342.
  • Graham, D. J. (2007). Agglomeration, productivity and transport investment. Journal of Transport Economics and Policy, 41(3), 317-343.
  • Graham, D. J. (2007). Variable returns to agglomeration and the effect of road traffic congestion. Journal of Urban Economics, 62(1), 103-120.

 

Ongoing Research Projects


The impact of the Jubilee Line Extension in London on the spatial distribution of economic activity

Canary WharfThis research uses data on the location of business units and employment in London to estimate the impact of a new metro line on the spatial distribution of economic activity. Our unique business units level dataset allows us to track the movement of units across space and time, making it possible to estimate the growth and displacement component of the impact. In addition to standard panel fixed effect methods, we employ a planned-route instrumental variables methodology which uses planned but abandoned metro alignments.

We find that areas within walking distance to stations experience a significant positive effect (3.6% more business units and 2.5% more employment), whereas areas further off but still within 2000 meters experience a significant negative impact (-1.3% for business units and -3% for employment). Our result provides empirical evidence for the models of both Fujita et al. (1999) and Redding & Turner (2015) as areas close to the transport scheme but not subject to it are worse off than areas further away. The results suggest no growth, only displacement: the metro merely shifted economic activity closer to the stations.

This paper contributes substantively to both the urban and transport economics literatures, and it also provides useful insights for the assessment of wider economic benefits in project appraisal, and thus, for the efficient use of public funds.

Authors: Csaba Gábor Pogonyi, Daniel J. Graham, Jose M. Carbo
Current status: Under review


 

Public transport provision under agglomeration economies

ArchUrban agglomeration economies have gained increased attention in the appraisal of transport investments, as the external productivity benefits of cheaper commuting to work may significantly affect the economic performance of infrastructure improvements. Such productivity benefits may arise as a result of short-term transport interventions as well, including infrastructure pricing.

This paper investigates optimal policy design in public transport, where the mainstream literature derived optimal pricing and service quality rules from waiting time costs, crowding externalities, operational characteristics, modal substitution, and the marginal cost of public funds. The paper shows in a simulation setting that the impact of the agglomeration externality on supply variables is comparable in magnitude to traditional model components.

Agglomeration leads to significantly lower fares and cost recovery ratio in optimum, due to the external benefits of commuting combined with inherent density economies in public transport. However, the study reveals important consequences of the fact that productivity externalities are not mode specific: in multimodal systems the agglomeration mechanism supporting lower fares disappears if parallel road sections are inefficiently priced.

Authors: Daniel Hörcher, Bruno De Borger, Woubit Seifu, Daniel J. Graham
Current status: Under review


 

Optimal infrastructure reinvestment in urban rail systems: A dynamic supply optimization approach

LUThe state of infrastructure in many developed countries around the world is an increasingly pressing issue, with ballooning costs the longer repairs are deferred.  Indeed, in the US, it is estimated that $4.6 trillion is needed to fix the country’s infrastructure and meet forecast demand by 2025.  In today’s increasingly urbanizing world, the urban rail network is particularly critical, since infrastructure failures can have severe economic consequences for both the operator’s finances and user time costs.

This paper thus provides a welfare-maximizing system-level model that integrates asset management with the optimization of pricing and vehicle capacity provision, in an intertemporal (dynamic) framework with infrastructure depreciation. Using a simulation approach and calibrating with London Underground data, the exploratory results highlight the importance of long-term capital planning (20+ years), with up to 11% annual welfare gain against continued 2016 levels, while overall subsidies are significantly lower. An adequate and steady level of infrastructure-related spending is necessary for this gain. Fares are crucial for funding and should be set to cover most of the overall transport agency costs. Additionally, a political objective function is tested and shown to diverge from social welfare maximization outcomes, with the former exhibiting greater instability and reduced net benefit in later years. The results reflect reality, with a low initial level of asset-related ‘behind-the-scenes’ spending causing infrastructure deterioration and decreasing supply, requiring subsequent spikes in renewal spending to keep the system working; a significant planning policy intervention would be needed to fix the system.

Authors: Praj Xuto, Richard J. Anderson, Daniel J. Graham, Daniel Hörcher
Current status: Presented at hEART 2019