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Highway Costs and the Efficient Mix of State and Local Funds


  • David Levinson

    () (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)

  • Bhanu Yerra


Transportation networks and governments are both hierarchically organized. In some states most highways are financed by state governments, while in other states similar roads are financed locally. Larger governments attain scale economies. However they also tend to be more bureaucratic and have higher operating costs, all else equal, due to problems such as span of control. This study relates highway expenditure with share of expenditure by state government so that a basis for determining how governments should share expenditure on all roads in a state to attain efficiency in highway costs. For each state three different costs are considered: capital outlay, operations and maintenance, and total costs. Two government layers are considered: state (including federal contributions) and local government. A series of regression models to predict different highway expenditures as a function of utilization, capacity, and funding shares are estimated. We find that there is a share of expenditures by each level of government which results in a minimum expenditure for each funding category (capital, operating). That minimum is not very far from typical state/local mixes found in many states. The results of this study can be applied in formulation of efficient network financing arrangements. Policies can be formulated that can help adjust the financial responsibilities of transportation networks between government layers.

Suggested Citation

  • David Levinson & Bhanu Yerra, 2002. "Highway Costs and the Efficient Mix of State and Local Funds," Working Papers 200205, University of Minnesota: Nexus Research Group.
  • Handle: RePEc:nex:wpaper:hierarchy

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    Cited by:

    1. Feng Xie & David Levinson, 2009. "Governance choice on a serial network," Public Choice, Springer, vol. 141(1), pages 189-212, October.
    2. Shanjiang Zhu & David Levinson, 2011. "The Hierarchy of Roads, the Locality of Traffic, and Governance," Working Papers 000097, University of Minnesota: Nexus Research Group.

    More about this item

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government


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