Transport economics�in policy and practice

Jonas Eliasson

Director of Transport Accessibility, Swedish Transport Administration

Professor of Transport Systems, Linköping University

Vice chair, Governmental Expert Group in Public Economics (ESO)

Something about me

• MSc Engineering Physics, 1994
• PhD Transport and location analysis, 2000
• Professor transport systems KTH 2007-2017, LiU 2018-present
• Applied transport policy (e.g. congestion pricing, national and urban transport plans, transit systems, investment appraisal, railway capacity allocation…)
• Director Stockholm City Transport Administration, 2016-2019
• Director Transport Accessibility, Swedish Transport Administration, 2019-
• Chair of Civil Engineering division, Royal Academy of Engineering Sciences (2019-2022) etc.

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Agenda

• How transport economists think (apologies for generalizations)
• Problems (according to economists)
• How the public, planners and politicians think (apologies again)
• Root causes of the problems
• What can be done?
• Things which often need to be repeated
• Low-hanging fruits

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• Some references at the end – thanks to coauthors and collaborators (Maria, Mattias, Mogens, Karin, Morten, James, Emanuel, Abdou, Stef, Peter...)

How transport economists think

• Facts are good, and necessary for policy-making
• Correct descriptions of the world and of policies’ effects are desirable and useful
• Efficiency is good
• More aggregate benefits for a given budget is generally better
• …even if we may disagree about relative benefit weights, fairness, and distribution
• It’s all about tradeoffs – free lunches are very rare
• Individuals’ usually behave in line with their preferences
• Look for market failures, but otherwise don’t interfere (much) with people’s lives and choices

Problems

Common deficits in transport decision making (according to most transport economists)

• Inefficient choice of infrastructure investments
• Too little money is spent on infrastructure maintenance
• Cost overruns are endemic
• Lack of efficient pricing
• Emissions, congestion pricing, transit fares, parking charges, road and railway charges…
• Inefficient public allocation and supply
• Railway capacity allocation, transit network design, …

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• Trust in public institutions is important
• Trust is nurtured by transparency, balanced analyses and truthfulness

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Example: Investment choices tend to be inefficient

Benefit/cost ratio of ~ 500 investment candidates

Example: actual selection of investments

Benefit/cost ratio of ~ 500 investment candidates

Politicians’ selection

(planners)

(planners)

Planners’ selection

Planners’ selection 2

Excluded

Example 2: Sweden’s infrastructure investment plan

In the plan

Excluded

Almost in the plan

Investment cost

Benefit/cost ratio

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BCR=1

Road

Railway

High-speed rail

Sea

Example: Cost overruns are endemic�(Welde & Odeck 2014)

Planning and decision

Building

How the public, planners and politicians think

• The public:
• Attention threshold
• Care about different things, but few care about efficiency as such
• Planners:
• Three kinds: analysts – doers – activists (incl. activist “think”-tanks)
• Tend to be paternalistic
• Tend to be overconfident wrt how much they know
• Politicians:
• Judged on what can be seen.
• Interfering almost by definition
• What they want usually comes first; analyses come later

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A typology of planners

Root causes of the problems (1)

• The attention threshold
• Not many people care about efficiency
• Planners tend to be paternalistic, and overestimate their gut feeling
• In politics, what matters is what can be seen
• Political visions often become too detailed (mixing solutions and goals)

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• Opportunity costs are not salient
• Accessibility is not salient (enough)
• In politics, conflicts are good (consensus policies have no political upside)

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In politics, what people see is what matters

Cheap vs. luxury appearance – but similar function and benefits

Opportunity cost of luxury alternative is not salient;

sends stronger signal that you care for cyclists

Root causes of the problems (2)

• Magnitudes are difficult
• Confirmation bias
• Projects/policies are prioritized based on how serious and salient a problem is perceived, rather than on their efficiency (benefits/cost)
• Power conflicts between political levels
• Planning takes time, election cycles are short; decisions are made too early

What can be done?

• CBA is really, really useful – and ranking of alternatives is usually robust

CBA is really, really useful

• Structured analysis and thinking
• Magnitudes of effects
• Makes opportunity costs more salient
• Interpersonal comparison of options and projects (1000’s of alternatives!)
• Antedote for optimism bias & confirmation bias
• Reduces influence of loud or well-connected special interest groups

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• Ranking tends to be robust against uncertainties in forecasts, valuations, input assumptions etc.

Ranking of ~500 suggested investments wrt. net B/C ratio�

Top 150

The ”good” are much better than the ”bad” –

despite being shortlisted by professionals!

Robust ranking wrt. benefit valuations and input assumptions

What can be done?

• CBA is really, really useful – and ranking of alternatives is usually robust
• Don't (only) be a nay-sayer: help creating a "vision"
• Get involved before politicians decide what to pursue
• Avoid “problem-based planning”: emphasize benefit/cost
• Efficient selection encourages suggesting efficient candidates
• Make opportunity costs salient
• competition between projects as long as possible
• Emphasize things which people care about (i.e. not (primarily) efficiency)
• Find alliances between interest groups
• Solve power conflicts – align political incentives
• Postpone final decisions until benefits and costs are known
• Explain accessibility and make it more salient
• Carry out more ex-post evaluations of project/policies’ effects

Things which often need to be repeated

• CBA is really, really useful – and tend to be robust
• Use and maintenance of infrastructure matter more than building new things
• There are more ways to increase accessibility than shorter travel times
• Models are usually much more reliable than (experts’) gut feelings
• But inputs are often uncertain (especially in the long term)
• Mode shares are not a good evaluation measure, or policy target
• Cross-elasticities (and hence the effect of carrots) are usually rather small
• Road traffic is not likely to spontaneously decrease
• Internet, pandemic experience, smartphones, telegraphs, youth preferences …
• Commuting is a small share (25-35%) of passenger kilometers traveled
• Induced traffic is a real phenomenon – but that does not mean that all road improvements are pointless
• There are “problems” which have no efficient “solutions” (don’t call them “problems”)

Low hanging fruits

• Optimize transit supply and transit fares
• In particular bus traffic
• Put a price on roadworks and other causes of delays, capacity reductions etc
• Improve handling of traffic incidents (accidents etc.)
• Bicycles need their own traffic legislation; they are not cars
• Longer and heavier trucks
• Feasible on most major roads
• Optimize parking charges (and parking supply)
• Tradeoff opportunity cost vs. search costs
• Evaluate effects of interventions
• Especially small ones – tend to be common and repeated

References https://sites.google.com/view/jonaseliasson/publications

Eliasson, J., Börjesson, M. (2022) Costs and benefit of parking charges in residential areas. Transportation Research B.

Eliasson, J. (2021) Will we travel less after the pandemic? Transportation Research: Interdisciplinary Perspectives.

Eliasson, J. (2021) Efficient transport pricing – why, what, when? Communications of Transportation Research 1.

Eliasson, J. (2017) Congestion pricing. In Ison, S. (ed.): Handbook of Transport Economics. Routledge.

Andersson, M., Brundell-Freij, K., Eliasson, J. (2017) Validation of reference forecasts for passenger transport. Transportation Research A 96, 101-118.

Asplund, D. and Eliasson, J. (2016) Does uncertainty make cost-benefit analyses pointless? Transportation Research A 92, 195-205.

Eliasson, J., Börjesson, M., Odeck, J., Welde, M. (2015) Does benefit/cost-efficiency influence transport investment decisions? Journal of Transport Economics and Policy 49(3), 377-396.

Eliasson, J. (2015) Problemstyrd planering: en förklaring till att effektivitet spelar så liten roll för valet av transportåtgärder. In Welde and Odeck (eds.): Ressursbruk i transportsektoren – noen mulige forbedringer. Concept Report No 44, Oslo.

Mackie, P., Worsley, T. and Eliasson, J. (2014) Transport appraisal revisited. Research in Transportation Economics 47, 3-18.

Eliasson, J. (2014) The role of attitude structures, direct experience and framing for successful congestion pricing. Transportation Research A 67, 81-95.

Börjesson, M., Eliasson, J., Lundberg, M. (2014) Is CBA ranking of transport investments robust? Journal of Transport Economics and Policy 48(2), 189-204.

Eliasson, J. and Fosgerau, M. (2013) Cost overruns and demand shortfalls: deception or selection? Transportation Research B 57, 105-113.

Eliasson, J., Börjesson, M., van Amelsfort, D., Brundell-Freij, K., Engelson, L. (2013) Accuracy of congestion pricing forecasts. Transportation Research A 52, 34-46.

Eliasson, J. and Lundberg, M. (2012) Do cost-benefit analyses influence transport investment decisions? Experiences from the Swedish Transport Investment Plan 2010-2021. Transport Reviews 32(1), 29-48. doi:10.1080/01441647.2011.582541

Eliasson, J. (2009) Expected and unexpected in the Stockholm Trial. In Gullberg and Isaksson (ed.): Congestion taxes in city traffic. Lessons learnt from the Stockholm Trial. Nordic Academic Press.

Eliasson, J. (2008) Lessons from the Stockholm congestion charging trial. Transport Policy 15(6), p. 395-404. doi:10.1016/j.tranpol.2008.12.004

Eliasson, J. (2019) 45 punkter för bättre Stockholmstrafik. Stockholms Handelskammare.

Börjesson, M. och Eliasson, J. (2015) Kostnadseffektivitet i valet av infrastrukturinvesteringar. Rapport till Finanspolitiska rådet 2015.

Hamilton, C., J. Eliasson, K. Brundell-Freij, C. Raux, S. Souche, K. Kiiskilää, J. Tervonen (2014) Determinants of congestion pricing acceptability.

Eliasson, J. (2012) How to solve traffic jams. Featured talk at TED.com, Nov 2012.

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There’s nothing more applicable than good theory.