Assessing the Economic Value of the Transportation Network

Estimates of the value of the highway system are presented. To develop new and better management strategies, including pricing, the change in value to those who use the system needs to be known. In contradistinction to other literature on the subject, first, a willingness-to-pay approach is used to measure the value of the system and, second, the value to the household sector—as well as to the industrial and commercial sectors—is included. Two approaches are described and compared. The first takes the standard view that the value of the roadway system is the present value of the capital stock. This is a measure of the opportunity cost of capital invested in highways. The second approach develops a measure of the value of marginal product of transportation (VMP_T). This is a flow estimate of the demand for transportation by those who use it as input. The value is measured from the derived demand curve. An indicator of the demand for transportation by households is computed similarly by estimating an expenditure function. The sum of these two derived demands is the full value of the system. A conventional capital stock measure shows the system is worth approximately $12.5 billion (1986 dollars). However, this measure is low when compared with what are termed “use measures.” When a marginal revenue product function for highway capital is constructed, the value of the current system to users is—on the production side—$14.8 billion, but the stock measure is less. The fundamental difference is that the use measure includes the surplus accruing to highway users. The same conceptual model is used to obtain an estimate of consumer or private valuation of the highway system. This has not been included previously in measures of value; it amounted to approximately $26 billion. When aggregated with production values, the difference between the conventional, stock approach and the consumer-and-producer valuation approach is—again expressed in 1986 dollars—$12.5 billion versus approximately $41 billion.