0.

TRANSPORT ECONOMICS
(MPE_TREN)
 Transport economics
• Transport Economics explores the efficient use
of society’s scarce resources for the
movement of people and goods.
• Its numerous case studies illustrate the
economic principles, discuss testable
hypothesis, analyze econometric results, and
examine each study’s implications for public
policy.
 Course
1. Transport markets 9. Subsidy
2. Demand elasticity 10. Pricing
3. Transport demand issues 11. Transport and development
4. Costs 12. Transport appraisal
5. Efficiency 13. Demand forecasting
6. Competition
7. Ownership
8. Regulation
 Empirical Project
• The major task will be to write an empirical
project in transport economics.
 Course Evaluation
• 25% - class attendance
• 25% - class activity
• 25% - written exam
• 25% - defense of an empirical project
 Contact
• Zdeněk Tomeš
• [email protected]
1. TRANSPORT MARKETS
 Market analysis
• Market demand and supply
• State regulation and intervention
• Ceteris paribus clause
 The law of demand
Law of demand states that, all else being
constant, as the price of a product increases
(↑), quantity demanded falls (↓)
 Demand curves
Figure 3.1
 Demand determinants
• Income ↑
• Price of substitutes ↑
• Price of complements ↓
• Fashion
• Expectations
Case 1: Impact of income on demand
 Theory of supply
The law of supply is a fundamental principle of
economic theory which states that, all else
equal, an increase in price results in an increase
in quantity supplied
 Supply determinants
• The cost of production
• Government policy
• The price of goods in joint supply
• Natural shocks
• Aims of producer
Case 2: British bus industry
 Organization of Supply
• Integration or Fragmentation?
• Monopoly or Competition?
• Intervention or Liberalism?
 Market workings
• Putting together demand and supply
• Incorporate market imperfections
• Adding government intervention and
regulation
 Readings for Lecture 2
Paulley, N., Balcombe, R., Mackett, R.,
Titheridge, H., Preston, J., Wardman, M., ... &
White, P. (2006). The demand for public
transport: The effects of fares, quality of service,
income and car ownership. Transport Policy,
13(4), 295-306.
2. TRANSPORT DEMAND
ELASTICITY
 Elasticity
Elasticity of demand is the responsiveness of
demand to a change in one of its determinants
 Price elasticity
Price elasticity of demand = Percentage Change
in Quantity Demanded/Percentage Change in
Price
 Determinants of price elasticity
• The number and closeness of alternative
modes of travel (subsitutes)
• Proportion of disposable income spent on the
mode of travel
• Time dimension
Price elasticity of demand estimates of
passenger transport
Price elasticities
 Cross price elasticity
Cross price elasticity = Percentage change in
quantity demanded of service A/Percentage
change in price of service B
 Cross price elasticities intercity passenger
transport demand in Canada, mid range values,
Oum and Gillen (1983)

Mode Air Bus Rail

Air − −0.015 0.025

Bus −0.085 − −0.340
Rail 0.295 −0.675 −

Source: Adapted from Oum et al. (1990)

Note (again) that quantity A is shown on the rows.
Estimates of cross-elasticities of
transport demand
 Income elasticity
Income elasticity = Percentage change in
quantity demanded/Percentage change in
income
South East Britain income rail elasticities
(2002)

Area Income elasticity

South East to London 2.07

London to South East 1.90
South East Non London 0.89
Non London 0.11

Source: ATOC (2002)

Historical income and price elasticities

Fouquet, R. (2012). Trends in income and price elasticities of transport demand (1850–2010).
Energy Policy, 50, 62-71.
 Readings for Lecture 3
• Buehler, R., & Pucher, J. (2012). Demand for
public transport in Germany and the USA: an
analysis of rider characteristics. Transport
Reviews, 32(5), 541-567.
3. TRANSPORT DEMAND ISSUES
 1. The Notion of Need
• There are some advocates of the idea that
transport services, or at least some of them,
should be allocated according to need rather
than effective demand.
• The idea is that just as everyone in a civilized
society is entitled to expect a certain standard
of education, medical care, security and so on,
so they are also entitled to enjoy a certain
minimum standard of transport provision.
 The problem of rural demand
• The provision of public transport services to satisfy
demand in rural areas has always been problematic.
• Such services have high costs, but low revenues due
to low load factors. They are uneconomic.
• However, the demand for these services is very real,
as rural populations require them to get to work, to
do their shopping, to access schools and medical
care and for social reasons.
 The problem of rural demand
This problem has worsened in recent times for four
main reasons:
1. Greater car usage
2. Growth of urban conurbations
3. Public services co
4. ncentrated in urban centres
5. Population ageing
Suggested reading: White, P. (2015). Report on public
transport provision in rural and depopulated areas in the
United Kingdom.
 2. Problem of peak
• In economics it is usually assumed that
demand is constant per unit of time
• In transport economics this assumption
cannot be made as there are peaks in demand
tht occur on a regular basis
Distribution of traffic by time of the
day, UK, 2004: Cars
Distribution of traffic by time of the day,
UK, 2004: Goods vehicles
 3. Valuation of time
• The importance of travel time in transport
economics should now be apparent.
• Transport time savings re normally considered
to be a major component of any scheme
designed to improve transport efficiency.
 Value of time
• A value of time can be inferred from logit
model by looking at changes in the dependent
variable that result from change in either time
or costs difference.
 Value of time
• There differences between values of working
times and non-working times.
• Also there are differences in the values of
walking/waiting times and in-vehile times.
• This has important consequences for design fo
public transport.
• Suggested reading: Small, K. A. (2012).
Valuation of travel time. Economics of
transportation, 1(1), 2-14.
 4. Demand for car
While demand for cars is not a strictly transport
matter, the importance of the automobile in
travel behaviour, land use patterns and the
enviroment makes it a matter of considerable
interest to transport economist.
Two approaches to modelling demand for car
ownership:
• Hedonic approach
• Product life cycle
 Is demand for car already saturated?

Suggested reading:
• Metz, D. (2013). Peak car and beyond: the
fourth era of travel. Transport Reviews, 33(3),
255-270.
• Buehler, R., Pucher, J., Gerike, R., & Götschi, T.
(2017). Reducing car dependence in the heart
of Europe: lessons from Germany, Austria, and
Switzerland. Transport Reviews, 37(1), 4-28.
 Readings for Lecture 4
• Glaeser, E. L., & Kohlhase, J. E. (2004). Cities,
regions and the decline of transport costs.
Papers in regional Science, 83(1), 197-228.
4. TRANSPORT COSTS
 Introduction
• A major factor affecting supply is the cost of
production
• Monetary costs + Time costs = Generalised
costs of transport
• How to maintain downward pressure on
public transport costs?
 Cost categories
• Monetary costs; Time costs
• Infrastructure costs; Operators costs
• Enviromental costs; Accident costs
 Costs classification
Fixed costs (FC) = costs that are the same irrespective
of the level of output that is produced
Variable costs (VC) = costs that change as the level of
output changes
Semi-variable costs (SVC) = costs that are fixed over a
certain range of output, but then change once the
upper limit of that range is reached
Case: Mode cost comparison
The importance of cost structure in the
business model of low-cost airlines
 Short run and long run
• Short run = at least one factor of production is
fixed
• Long run = variations in output can be
achieved through variation of all of the inputs
The short run average cost curve
The long run average cost curve
 Economies of scale, scope and density
• If an equal proportionate increase in all outputs and
route kilometers leads to the same proportionate
increase in costs → constant returns to scale
• If an equal proportionate increase in all outputs holding
route kilometers constant leads to the same
proportionate increase in costs → constant returns to
density
• If splitting the production of passenger and freight
outputs and of infrastructure leads to increased costs →
the railway is said to experience economies of scope
Nash, C. (2011). Competition and regulation in rail transport. Handbook of Transport
Economics.
 Readings for Lecture 5
• Smith, A. S., & Nash, C. (2014). Rail Efficiency:
Cost research and its implications for policy.
5. EFFICIENCY
 Scarcity, choice and opportunity cost
• Any resource is scarce
• If individuals cannot have all that they want,
then choices need to be made
• Opportunity cost is the next best alternative
forgone

These three principles can be illustrated on

production possibility frontier.
 Efficiency
• The inputs/outputs ratio is the main base for
assessing whether a given operation can be
described as efficient or not.
Technical, cost and allocative efficiency

Technical efficiency = minimum level of inputs to

produce maximum level of outputs
Cost efficiency = most cost efficient input
minimization
Allocative efficiency = cost effcieincy + right
quantities
Service efficiency and effectiveness
 DEA + Tobit
• DEA (data envelopment analysis) = non
parametric method for the estimation of
production functions. It is used to empirically
measure productive efficiency.

• Tobit regression = to identify the determinants

of DEA efficiency scores
Case study in railways efficiency
Driessen, G., Lijesen, M., & Mulder, M. (2006). The impact of
competition on productive efficiency in European railways (No. 71). CPB
Netherlands Bureau for Economic Policy Analysis.
 Outputs and inputs

Driessen, G., Lijesen, M., & Mulder, M. (2006). The impact of competition on productive efficiency in
European railways (No. 71). CPB Netherlands Bureau for Economic Policy Analysis.
Efficiency scores - DEA

Source: Driessen et al. (2006)

Efficiency determinants

Source: Driessen et al. (2006)

Efficiency determinants – regression

Source: Driessen et al. (2006)

 Readings for Lecture 6
• Nash, C., Crozet, Y., Nilsson, J. E., & Link, H.
(2016). Liberalisation of passenger rail
services. CERRE Report.
6. COMPETITION
 Perfect competition (assumption)
• Many buyers and sellers
• No barriers to entry or exit
• All firms are profit maximisers
• All consumers are utility maximizers
• Perfect information
• Homogenous product
• No economies of scale
• Non rivarly in consumption
• Absense of externalities
• No governemnt intervention
 Barriers to entry
• Firm size
• High sunk costs
• Product differentiation
• Legal protection
• Control of factors of production
• Exclusive dealership
• Branding
 Disadvantages of monopoly
• Production inefficiencies
• Higher prices charged and lower output
produced
• Reduction of consumer surplus and is
regressive
• Net welfare loss
• X-efficiency
• The market no longer regulates itself
 Advantages of monopoly
• A higher level of expenditure on R a D
• Market size – a natural monopoly
• Wasteful competition
• Hotellings law
 Contestable markets
Baumol (1982) – it is unneccessary for the
market to be in perfect competition in order to
produce economically efficient results. It is
enough to be a contestable market.
Contestable market = entry to the market is free
and exit is costless
 Case: Contestability in airlines
The sector is becoming more contestable
because:
• Control over landing slots is lower
• The spread of information through Internet
• The frequent flyer initiative is on retreat
• The growth of LCA
 Competition on x for the market
• Competition on the market = this occurs
where there is no restriction on entry.
Operators are competing directly against each
other.

• Competition for the market = where entry to

the network is restricted, it is possible to
organize competition for the exclusive right to
service individual routes
 European rail
Competition on the market:
• Praha – Ostrava; Praha – Brno
• Wien – Salzburg; Roma – Milano
• Stockholm - Goteborg

Competition for the market:

• British franchising
• Germany regional traffic
• Many others

See: Nash, C., Crozet, Y., Nilsson, J. E., & Link, H. (2016). Liberalisation of passenger
rail services. CERRE Report.
 British bus reform
• Local buses in Britain, outside London, were
‘deregulated’ in 1986 (competition on the
market)
• By contrast, in London, the 1984 London
Regional Transport Act introduced a system of
comprehensive tendering (competition for
the market)
• This paper examines the long term impacts of
these changes.
British bus industry - demand
British bus industry - supply
British bus industry – key changes
 Readings for Lecture 7
• Preston, J., & Robins, D. (2013). Evaluating the
long term impacts of transport policy: The
case of passenger rail privatisation. Research
in Transportation Economics, 39(1), 14-20.
7. OWNERSHIP
 Introduction
• Due to many market imperfections, transport
markets usually cannot be left entirely to
market forces to resolve economic transport
issues.
• In most cases, therefore, they need some form
of external intervention in order to correct for
market failures
 Government control
Government control of transport markets can be
achieved through one of two measures:
• Regulation - control through direct command;
i.e. telling operators what to do
• Ownership – the transport authority can own
the assets and the means of production. The
market is brought into public sector and thus
it does not have to operate along market
principles
 Reasons for public ownership
• Eradicate wasteful competition
• Military significance
• Public goods
• Essential to the economy
• A large employer
• Key industry
• High project development costs
 Reasons for privatization
• Increasing discontent with the model of public
ownership
• Changing macroeconomic enviroment
combined with social change
• The desire to introduce competition into the
provision of transport services
Rail privatization in Britain – success or
failure?

Preston, J., & Robins, D. (2013). Evaluating the long term impacts of transport policy: The case of passenger rail
privatisation. Research in Transportation Economics, 39(1), 14-20.
Rail privatization in Britain – success or
failure?

Preston, J., & Robins, D. (2013). Evaluating the long term impacts of transport policy: The case of passenger rail
privatisation. Research in Transportation Economics, 39(1), 14-20.
 Canada (1980): Public ownership does not
matter?
The efficiency of public and private firms is usually compared in
industries which have heavy regulation and limited competition.
In this paper we present a case study in which the effects of
property rights can be isolated from the effects of regulation on
noncompetitive markets. We compare the postwar (1956 – 1975)
productivity performance of the Canadian National (public) and
Canadian Pacific Railroads (private). Contrary to the predictions
of the property rights literature, we find no evidence of inferior
performance by the government-owned railroad. We conclude
that any tendency toward inefficiency resulting from public
ownership has been overcome by the benefits of competition.
Caves, D. W. – Christensen, L. R. (1980): The Relative Efficiency of Public and Private Firms in a
Competitive Enviroment: The Case of Canadian Railroads. Journal of Political Economy
 Canada (2013): Ownership does matter?
This article describes and analyzes the privatization of Canadian National
Railway (CN), a large railroad privatization (1995). It uses data from 1990 to
2011 to compare CN's post-privatization operating performance with its pre-
privatization performance. The overall results demonstrate that CN
performed substantially better following privatization, both from an
operational perspective and from a broader social welfare perspective. We
find statistically significant increases over the long term (16 years following
privatization) in sales, capital investment, assets, profit, profitability,
productivity, dividends and corporate taxes paid. There was little change in
the capital structure of CN and a significant decrease in employment. Using
Canadian Pacific Railway as a basis for the counterfactual, we estimate that
CN's privatization generated social welfare gains of approximately $25 billion
in 2011 Canadian dollars. The Canadian government received almost half of
these gains, while CN's shareholders (most of whom were non-Canadian)
captured the rest.

Boardman, A. E., Laurin, C., Moore, M. A., & Vining, A. R. (2013). Efficiency, profitability and welfare gains from
the Canadian National Railway privatization. Research in Transportation Business & Management, 6, 19-30.
Canada: Output
Canada: Employment and costs

Boardman, A. E., Laurin, C., Moore, M. A., & Vining, A. R. (2013). Efficiency, profitability and welfare
gains from the Canadian National Railway privatization. Research in Transportation Business &
Management, 6, 19-30.
 Readings for Lecture 8
Reform of the Railway Sector and its
Achievements - Network Industries Quarterly -
Vol 18 - No 4 (December 2016)
8. REGULATION
 Introduction
• This presentation is concerned with control
and specifically the control by relevant
authorities on the levels and behavour of
trasnport users and operators under their
control
• It concerns all areas of transport, whether that
be public, private or freight
 Forms of regulation
• Specify the price to be charged
• Specify the maximum increase in price allowed
• Regulate the (final) price through the tax
charged on the good or service
• Specify the rate of return (profit) to be gained
• Through introducing yardstick competition
• Specify a minimum frequency
• Limit market entry
 The rationale for the regulation
• To overcome the markt failure or
imperfect/assymetric information
• The market can no longer regulate itself
• To correct for externalities
• To ensure the quality of the service provided
• To provide a transport service where none
exsited before
• To improve efficiency within the industry
 The drawbacks of economic regulation
• Limits free enterprise
• Inefficient, second best solution
• Assymetry of information
• The issue of regulatory capture
• Cumbersome regulatory procedures make
avoidance of regulatory measures possible
 Case: Regulaton of the British railway
industry
• 1945 - 1994 – British Rail. Vertically and
horizontally integrated single nationalized operator
in the UK.
• 1994 - 1997 – British railway reform. British Rail
divided into 104 separate companies with the
main purpose to introduce competition at all levels
of railway operation (train operating companies,
rolling stock leasing companies, infrastructure
maintenance amd renewal companies).
• The majority of these companies were privatized
 British infrastructure provider
• The one exception was the infrastructure provider, where it
was considered that the advantages of having a single national
network operator significantly outweighed the drawbacks of
splitting the network up into separate geographical areas.
• This therefore left a monopoly provider of the infrastructure
throughout the country
• This was organized into a company called Railtrack which was
floated on the stock exchange
• All infrastructure access charges were to be at full cost
• As a result, the firm would return a profit and receive no direct
subsidy except to assist the funding of railway investment
• The strong regulation was introduced to prevent the abuse of
monopoly power
British rail industry regulatory structure
1997 - 2001
 What went wrong?
• Railtrack investment needs, costs overruns on the major
infrastructure projects
• Railtrack had effectively very little control over its own costs; loss
of engineering expertise
• Broken rail at Hatfield (October 2000), resulting in a train
derailment and four fatalities. Railtrack panicked and
overreacted imposing severe speed limits on the network
leading to widespread delays and chaos (2000 – 2001).
• Under the terms of track access agreements, Railtrack had to
pay more than 500m GBP to train operating companies as a
result of the disruption caused.
• This combined with major cost overruns led to bankruptcy of
Railtrack in October 2001 and it was replaced by non-profit
organization Network Rail.
British rail infrastructure provider – results
 Readings for Lecture 9
• Crössmann, K., & Mause, K. (2015). Rail
subsidisation in the European Union: An issue
beyond left and right?. Comparative European
Politics, 13(4), 471-492.
9. SUBSIDY
 Introduction
Subsidy plays a vital role in the operation of
transport markets, because they are made up of
a combination of market forces and the actions
of transport planning authorities, with subsidy
playing the pivotal role in reconciling these two
forces in the actual market place
 Subsidy or payment for public service?
• The payment of subsidy is closely related to aspects
of regulation
• With the general move away from transport provision
through traditional forms of public ownership towads
far more private sector involment, many argue that
there is no longer a subsidy but rather a payment for
the performance of a contract for providing a service
• The issue is further complicated by the fact, that
paying transport subsidies has also a very strong
political dimension
 The rationale for subsidisation
• In support of land use efficient modes of
transport
• To lessen the impact of enviromentally
unfriendly modes of transport
• To support economic development or
regeneration of an area
• To support socially necessary services
Subsidy to operators to correct for under-
consumption (supply side measure)
 Demand side measures
• Far more straightforward
• Used to correct for a demand side market
failure
• Specific groups and individuals are targeted to
receive the subsidy
• In effect the individual is given a concession (a
reduced fare) to use a service
 Drawbacks of paying subsidy
• It is always a second best solution
• Can lead to inefficient operation
• The winners curse syndrom
• Subsidise a service that doesnt actually need a
subsidy
 Cross-subsidization
Cross-subsidization occurs where the profits of one
route or service are used to pay for the losses on
another route or service.
It has often been used in the past to reduce the level of
total subsidy
Drawbacks:
• Hides true costs of providing a particual service
• Users of profitable routes are penalized
• There are better instruments to ensure provision of
services
 Methods of paying subsidy
• Deficit subsidy
• Net cost contract
• Full cost contract
• Design, Built, Operate and Maintain (DBOM)
Economies of density and subsidy in
railways
 Readings for Lecture 10
• Alexandersson, G., & Hultén, S. (2006).
Predatory bidding in competitive tenders: A
Swedish case study. European Journal of Law
and Economics, 22(1), 73-94.
10. PRICING
 Introduction
• Pricing is a vital component in the economics
of transport
• The price determine who gets and who
doesn’t get a particular service, but also
determines the distribution of rewards
between the provider and the user
• The imperfect market structures are
characterized by higher rewards for the
providers
 The principles of pricing
• In most cases, transport services are
subsidised and/or regulated, however a basic
understanding of pricing principles is needed
• In order to achieve economic efficiency, the
price should equal the marginal cost
• In imperfect competition markets, it is
possible to observe price discrimination,
predatory pricing, price fixing and congestion
pricing
 Price discrimination
• Price discrimination refers to a situation where
a company charges particular consumers a
higher price than others for the same product
for reasons unrelated to cost.
• The seller must possess a degree of market
power, must be able to divide the market and
market segments must have differing
elasticities of demand.
 Perfect price discrimination
• To sell each unit (or ticket) seperately, charging
the highest price that each consumer is prepared
to pay
• If this was achievable, the seller would obtain the
entire consumer surplus from the consumer
• The seller must know the exact shape of each
consumer’s demand and charge each consumer
the maximum price they are prepared to pay
 Case: Sale of airline tickets
• On a typical airline flight there are three
classes, namely First, Business and Economy.
• Figure on the next slide refers to travel in a
particular class and the assumption is made
that the marginal cost of one extra passenger
is constant up to the point where the aircraft
reaches full capacity
• At this point the MC curve becomes perfectly
inelastic
Airline price discrimination
Yield management in the aviation
Loss making operator and perfect price
discrimination
 Predatory pricing
• Predatory pricing occurs when a firm with
maket power reduces its price below cost in
the short run so as to obtain abnormal profit
in the long run.
• Predatory pricing is aimed at either achieving
or maintaining a monopoly situation, with the
price set so as to bankrupt competitors,
„encourage“ them to merge or in fact collude.
 Predatory pricing
• The consumer may benefit in the short run
from lower prices, due lower competition such
activity may not be in the public interest in the
long run.
• In practise it can be very difficult to prove that
such activity has taken place
• Predatory pricing is an appealing strategy in a
segmented market
 Price fixing
• Firms in oligopolistic markets such as the
airline sector often face a dilemma as to
whether to compete with each other or to
collude
• Price fixing is a situation when oligopoly firms
agree on the price they are going to sell their
goods or services in order to remov price
competitiveness and thus increase their
profits
 Readings for Lecture 11
• Vickerman, R. (2015). High-speed rail and
regional development: the case of
intermediate stations. Journal of Transport
Geography, 42, 157-165.
11. TRANSPORT AND
DEVELOPMENT
 Learning Outcomes
• The link between economic development and
transport
• Causation: demand led and supply led effects
• Impact of transport on economic growth
• Transport role in the local economy
• The link between transport and wider social
development issues
Economic and transport growth

Freight transport and real GDP, Great Britain

Economic and transport growth

Passengerkilometers travelled and real GDP, Great Britain

 Direction of causation?
• The association between transport volumes and
GDP has long been recognized, there remains real
question over the direction of causation
• Is it that as income rise, more goods are
demanded and transported?
• The alterantive hypothesis is that advances in
freight transport will result in reduced transport
costs an it will lead to more goods produced
 Supply led view – transport leads to
economic development

To adopt a supply led model is to suggest that the casual

relationship is that improving the transport infrastructure
of an area will automatically stimulate economic activity.
This would occur for a number of reasons:
• Widening of markets, increased production and
multiplier effects
• Indirect effects on employment in construction and
operation
Demand led models – economic development
drives demand for transport
• Contrasting with the supply led view is the
alternative idea that transport provision is a
invaraibly a response to a basic demand, hence
the casual relationship is that economic
development leads to a demand for better
transport facilities
• Without a basic demand for an area’s goods and
services, then irrespective of the quality of the
transport infrastructure this will never stimulae
that demand
 Synthesis
• There is no clear answer to the direction of causation
and the two are closely assosiated
• Under a supply led view improving transport services
and/or upgrading the infrastructure is a necessary and
sufficient condition for imporved trasnport to lead to
economic development
• Under a demand led view, however, it is a necessary but
not sufficient condition, i.e. the only condition required.
There has to also be a basic derived demand for
transport services in rder for transport developments to
then facilitate economic development.
 Empirical evidence (examples)
Fogel (1964) – Railroads and economic growth
Purvis (1985) – highway development and economic
growth
Aschauer (1989) – elasticity of aggregated output with
respect to infrastructure spending
Harmatuck (1997) – return on infrastructure
investment will decline as maintanance expenditure
goes up
Rodriguez-Pose (2004) – impact of European transport
investment on economic development (almost zero)
 Decoupling transport from GDP
• There is a very close association between
freight and passenger traffic and GDP
• This has now become a major problem, due to
negative impact of transport on the enviroment
• Decoupling = GDP can continue to grow
without being associated with the growth of
traffic
• Is decoupling achievable?
 Transport and local economy
• The role of transport in the local economy →
the extent to which the multiplier effect is
allowed to function at the local level from any
external injection
• The better physical links within the local
economy → the easier it is for the benefits to
have a full impact
• Physical separation of production and
consumption
 Location
• Many theorists suggest that firms of similar
nature will tend to be located near to each
other for various reasons.
• Examples: Silicon Valley, Moravian Manchester
…..
• Improved transport links to create inustrial
clusters?
• The local economy, transport and housing
market
 Readings for Lecture 12
• Nash, C. (2015). When to invest in high speed
rail. Journal of Rail Transport Planning &
Management, 5(1), 12-22.
12. TRANSPORT APPRAISAL
 Learning Outcomes
• Understand why we appraise
• Understand main methods of appraisal
• Have an appreciation of how these methods
vary across Europe
• Be able to critique some of the key asumption
on whcih appraisal is based
 Transport investment
• Transport investment involves expenditure on
particular project in situation of limited
resources.
• The task is to choose the project that brings
maximum return
 Appraisal
• Appraisal is a way of predicitng how much
utility we as society will derive from the
expenditure on one project compared to
another, by predicting the utility that will arise
from each
• It is fundamental to realise that, inherent in
appraisal there is some kind of prediction or
forecasting required
 Cost benefit analysis (CBA)
• CBA estimates and totals up the equivalent
money value of the benefits and costs to
establish whetjer they rae worthwhile.
• The result of CBA is a number; this shows the
ratio of benefits to costs.
• The basis of CBA is that a monetary value
needs to be allocated to all benefits and costs
 How does CBA work?
• Choose options
• Choose length of time
• Use a predictive model
• Calculate time savings
• Take away benefits from cost to find out
whether benefits exceed costs and, if so, by
how much
 Key elements of CBA
• Project appraisal period
• The benefits that are assessed
• Forecasting and modelling
• Present value
• Values of time
• Accident valuation
• Operating costs
• Revenue
• Discounting
 Criticism and problems with CBA
• Valuing time savings
• Discount rate and length of time of project
appraisal
• What does NPV show us?
• Equity and distributional effects
• Project pricing – optimism and inaccuracy
 Costs and benefits of high speed rail

Nash (2015)
CBA of HSR in Spain
 CBA of HSR in Britain

Nash (2015)
 CBA of proposed HSR in Britain

Nash (2015)
 Readings for Lecture 13
• Guirao, B., & Campa, J. L. (2014). The
construction of a HSR network using a ranking
methodology to prioritise corridors. Land Use
Policy, 38, 290-299.
13. TRANSPORT FORECASTING
 Learning Outcomes (1)
• Alternative approaches to generating a forecats
of demand for existing, new or improved services
• Issues surrounding asking people how they or the
public would react to new or improved transport
services and the problems taht will occur
• Methods for identifying and projecting demand
for existing services when no major changes are
expected
 Learning Outcomes (2)
• Methods for identifying and projecting
seasonal change
• Methods for forecasting demand when
significant change is expected in the economic
and social envrioment
• Methods for forecasting the impact of new or
improved services in a competitive
enviroment
 Aim
• In order to assess if the provision of a new or
improved transport service makes economic
sense we need to have some idea of how
public will respond, both immediately and in
the far distant future
• Forecasting is about collecting information
from all relevant sources and analysing it in a
consistent structured fashion.
 General approaches
There are three approaches to forecasting
demand:
1. Qualitative: Surveys and Sampling
2. Time series analysis
3. Econometric techniques
 Qualitative Methods
• Qualitative Forecasting Methods are based on
surveys of either potential customers or
experts
• The major problem is identyfying who to ask
 Time series analysis
In time series analysis we seek to identify the
three elements:
1. The Trend
2. Seasonal or Cyclical Factors
3. The unusual (sometimes termed the
stochastic factor or noise)
 Econometric methods
The modelling process involves 6 stages:
1. Understanding the Problem
2. Obtaining the Data
3. Specifying the Model
4. Estimating the specified Model
5. Validating the Model
6. Simulation/Forecasting
 The gravity model
The model that predicts the level of tranport
between two locations to be dependent upon
their respective population sizes and the
distance between them
 Econometric demand models
The demand for particular mode (road, rail, air)
will be determined by income, price, joureny
times, frequency and comparative quality
 Modelling choice
• It is often the case that we are more
concerned with forecasting the share of
existing traffic than the growth of that traffic
• Logit models