Transport infrastructure investment and demand uncertainty
AbstractIn transportation planning, there can be long lead times to adapt capacity. This article addresses two questions. First, in a one mode world (e.g., rail or road), what is the optimal capacity choice when faced with uncertain demand, long lead times, and congestion. Using a simple analytical model, it is shown that when demand is inelastic, it is socially optimal to invest more than if only the expected level of demand is taken into account. In this case, it may be beneficial to overinvest in capacity because congestion costs are an increasing function of relative use. This result holds with or without optimal tolling. The second question deals with 2 competing modes in which only one mode has long lead times for capacity, whereas the other has flexible capacity. This is typical for the competition between high-speed rail and air for the medium distance trips (500–1,000 km), or for the competition between inland waterways and trucks for freight. We find that overinvestment is less justified because the substitute mode can more easily absorb the high-demand outcomes.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/316234.
Date of creation: 2010
Date of revision:
Publication status: Published in Journal of Intelligent Transportation Systems (2010) v.14, p.129-139
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Web page: http://www.kuleuven.be
Other versions of this item:
- Stef Proost & Saskia van der Loo, 2008. "Transport Infrastructure Investment and Demand Uncertainty," Center for Economic Studies - Discussion papers ces0809, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Proost, Stef & van der Loo, Saskia, 2008. "Transport infrastructure investment and demand uncertainty," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/165690, Katholieke Universiteit Leuven.
- R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion
- R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
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