Cost Recovery from Congestion Tolls with Long-run Uncertainty
According to the seminal Cost Recovery Theorem the revenues from congestion tolls pay for the capacity costs of an optimal-sized facility if capacity is perfectly divisible, and if user costs and capacity costs have constant scale economies. This paper extends the Theorem to long-run uncertainty about investment costs, user costs, and demand. It proves that if constant scale economies hold at all times and in all states, and if the toll can be varied freely over time and by state, then expected discounted toll revenues cover expected discounted investment costs over a facility's lifetime. If the marginal cost of investment is constant and investment is reversible, then expected cost recovery is also achieved for each investment. Cost recovery is quite sensitive to estimated initial demand, and moderately sensitive to the estimated growth rate of demand. Natural variability in demand can result in substantial surpluses or deficits over a facility's lifetime.
|Date of creation:||01 Feb 2013|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00784299|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eliasson, Jonas & Fosgerau, Mogens, 2013.
"Cost overruns and demand shortfalls – Deception or selection?,"
Transportation Research Part B: Methodological,
Elsevier, vol. 57(C), pages 105-113.
- Eliasson, Jonas & Fosgerau, Mogens, 2013. "Cost overruns and demand shortfalls – deception or selection?," MPRA Paper 49744, University Library of Munich, Germany.
- de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
- Chen Feng Ng & Kenneth Small, 2008.
"Tradeoffs among Free-flow Speed, Capacity, Cost, and Environmental Footprint in Highway Design,"
080904, University of California-Irvine, Department of Economics.
- Chen Ng & Kenneth Small, 2012. "Tradeoffs among free-flow speed, capacity, cost, and environmental footprint in highway design," Transportation, Springer, vol. 39(6), pages 1259-1280, November.
- Ng, Chen Feng & Small, Kenneth, 2011. "Tradeoffs among Free-flow Speed, Capacity, Cost, and Environmental Footprint in Highway Design," University of California Transportation Center, Working Papers qt1nz5904j, University of California Transportation Center.
- de Palma, André & Lindsey, Robin & Proost, Stef, 2007. "Chapter 1 Investment and the use of tax and toll revenues in the transport sector: The research agenda," Research in Transportation Economics, Elsevier, vol. 19(1), pages 1-26, January.
- Wang, Judith Y.T. & Lindsey, Robin & Yang, Hai, 2011.
"Nonlinear pricing on private roads with congestion and toll collection costs,"
Transportation Research Part B: Methodological,
Elsevier, vol. 45(1), pages 9-40, January.
- Lindsey, Robin & Wang, Judith & Yang, Hai, 2010. "Nonlinear Pricing on Private Roads with Congestion and Toll Collection Costs," Working Papers 2010-3, University of Alberta, Department of Economics.
- Pedro Miguel Pimentel & José Azevedo-Pereira & Gualter Couto, 2012. "High-speed rail transport valuation," The European Journal of Finance, Taylor & Francis Journals, vol. 18(2), pages 167-183, February.
- Richard Arnott & Marvin Kraus, 1995. "Self-Financing of Congestible Facilities in a Growing Economy," Boston College Working Papers in Economics 304., Boston College Department of Economics.
- Takeshi Nagae & Takashi Akamatsu, 2006. "Dynamic Revenue Management of a Toll Road Project under Transportation Demand Uncertainty," Networks and Spatial Economics, Springer, vol. 6(3), pages 345-357, September.
- Robert Bain, 2009. "Error and optimism bias in toll road traffic forecasts," Transportation, Springer, vol. 36(5), pages 469-482, September.
- DE BORGER, Bruno, .
"Discrete choice models and optimal two-part tariffs in the presence of externalities: Optimal taxation of cars,"
2000021, University of Antwerp, Faculty of Applied Economics.
- De Borger, Bruno, 2001. "Discrete choice models and optimal two-part tariffs in the presence of externalities: optimal taxation of cars," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 471-504, July.
- Odeck, James, 2004. "Cost overruns in road construction--what are their sizes and determinants?," Transport Policy, Elsevier, vol. 11(1), pages 43-53, January.
- Joseph Berechman & Li Chen, 2011. "Incorporating Risk of Cost Overruns into Transportation Capital Projects Decision-Making," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 45(1), pages 83-103, January.
- Bent Flyvbjerg & Mette K. Skamris holm & S�ren L. Buhl, 2003. "How common and how large are cost overruns in transport infrastructure projects?," Transport Reviews, Taylor & Francis Journals, vol. 23(1), pages 71-88, January.
- Lindsey, Robin, 2012. "Road pricing and investment," Economics of Transportation, Elsevier, vol. 1(1), pages 49-63.
- Lindsey, Robin, 2009. "Cost recovery from congestion tolls with random capacity and demand," Journal of Urban Economics, Elsevier, vol. 66(1), pages 16-24, July.
- Saphores, Jean-Daniel M. & Boarnet, Marlon G., 2006. "Uncertainty and the timing of an urban congestion relief investment.: The no-land case," Journal of Urban Economics, Elsevier, vol. 59(2), pages 189-208, March.
- Hensher, David A. & Goodwin, Phil, 2004. "Using values of travel time savings for toll roads: avoiding some common errors," Transport Policy, Elsevier, vol. 11(2), pages 171-181, April.
- Rose, Simon, 1998. "Valuation of Interacting Real Options in a Tollroad Infrastructure Project," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 711-723.
- P. Doan & K. Patel, 2010. "Toll Road Investment Under Uncertainty," ERES eres2010_423, European Real Estate Society (ERES).
- De Vany, Arthur & Saving, Thomas R, 1980. "Competition and Highway Pricing for Stochastic Traffic," The Journal of Business, University of Chicago Press, vol. 53(1), pages 45-60, January.
- Kraus, Marvin, 1982. "Highway pricing and capacity choice under uncertain demand," Journal of Urban Economics, Elsevier, vol. 12(1), pages 122-128, July.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00784299. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.