1. Economics of Congestion Jagadish Guria Presentation to the the 8th Annual New Zealand Transport Summit 25 February 2008

2. 2 Costs of congestion ► Land Transport New Zealand website indicates the cost of congestion in New Zealand is about $1 billion per year, based on a MOT study on Transport Costs and Charges ► This also notes that congestion has remained relatively unchanged from 2003 to 2006 in Auckland, Tauranga and Wellington but has increased in Chirstchurch ► This is based on value of travel time increase and its reliability

3. 3 Outline ► Causes of congestion ► Management of congestion

4. 4 Causes of congestion ► Temporal vs. Sporadic ► Demand and supply Pricing ► Land use distribution ► Public transport

5. 5 Demand and supply

6. 6 Public transport ► Public transport –Physical Accessibility –Convenience (travel time, comfort, frequency) –Fare

7. 7 Land use distribution ► Congestions during peak period are usually dominated by trips to and from work, particularly on highways ► Congestion within CBD areas are usually due to work trips, i.e., travelling for work related activities ► Both these factors, particularly the first one is influenced by land use distribution – where people live and where they work

8. 8 Land use transport link ► Land use distribution and transportation are linked – each influencing the other ► Low density residential development is to a large extent the effect of the transportation system including the pricing system ► Also land use distribution generates demand for specific types of transport –Low density urban fringe development increases demand for car travel and parking space –High density development makes public transport more attractive, accessible and affordable

9. 9 Management of congestion ► Network expansion ► Demand management –Pricing –Public transport Density and topography –Busways, HOV lanes, HOT lanes

10. 10 Network expansion ► Network expansion – often considered the solution to congestion problems ► The likely increase in severity of crashes and the total social cost is often not considered in benefit cost analyses ► Capacity expansion generates its own demand

11. 11 How expansion works

12. 12 Public transport ► An increase in the accessibility of public transport is expected to have an impact on congestion –Quality of service Travel time Frequency of service Comfort –Fare

13. 13 HOV lanes ► Other traffic management options include –Busways –High occupancy vehicle (HOV) lanes –High occupancy toll (HOT) lanes

14. 14 Efficient pricing ► Congestion charge is part of an efficient pricing system ► Congestion charges are not widespread due to theoretical and political reasons ► The estimated efficiency benefit depends on how realistic are the features of the models used – most studies indicate positive welfare gains ► Welfare effect: –economic benefit is expected to be higher with congestion price than without –depends on whether revenue from congestion tolls is returned to road users –depends on how congestion price redistributes the welfare from road users to other members of society

15. 15 Integrated approach Price Public transport Busway HOV HOT Capacity expansion Land use

16. 16 Conclusions ► Congestion is likely to be the effect of a non-optimal pricing system ► It would be lower if prices signalled the value of the road network at the specific place and time ► Network expansion is often chosen as the solution ► Congestion may appear soon if pricing system is not changed ► All relevant options should be considered before a decision on expansion is made