Project Abstract
Transportation planning decisions can have significant and diverse equity impacts (Litman, 2002). In particular, congestion and road pricing have raised equity concerns. Notably, the toll imposed on Managed Lanes on US highways affects drivers' income. This is especially true for low-earning individuals, who devote a large portion of their available budget to transportation. Therefore, any policy or project assessment should take into consideration the so-called Income Effect. This concept refers to the fact that the impact of a change in driving cost - for instance, a toll increase - is not constant for all individuals but depends on their own income level. Unfortunately, the two measures most commonly used in project evaluation practice, Rule of a Half (RoH) and Log-sum (LS), rely on the assumption of absence of Income Effect. Since microeconomic theory does not support these grounds, not to account for income effect in policy evaluation may produce inaccurate results. Applying a policy for which the economic impact is not well-assessed may lead to severe equity issues. This project proposes a methodology that accounts for income effect in the appraisal of Managed Lanes and calculates the errors due to the use of approximated methods. In particular, the analysis is based on three pillars: i) the use of real data, ii) the use of more realistic assumptions about drivers' behavior, considering different income levels and correlations between the alternatives, and iii) comparison of the LS and RoH and LS to the Compensating Variation (CV), the true benefit measure derived from microeconomic theory. These improvements provide a refined tool for the appraisal of the social, economic and equity aspects of transportation policy in the context of Managed Lanes. The tool will benefit private entities involved in road pricing projects, and transportation public agencies in need of ameliorating their evaluation of equity issues.
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Outputs and Outcomes
Managed lanes can alleviate congestion and generate revenue for infrastructure, but a key question is the financial impact on an individual, especially those with lower incomes. Two measures routinely used to evaluate the impact of these policies are the Rule of a Half (RoH) and the Log-sum (LS), but they rely on the absence of income effect. This research shows that both measures are not appropriate as proxies for CV--the amount of money to be deducted from the consumer's income in order to leave him or her as well off as before a price reduction--and they become more inefficient as the policy intensifies. The findings of this work clearly demonstrate that income effect plays a role in driver's behavior, and the methodologies used to evaluate the impacts should be reconsidered to properly appraise social, economic and equity issues.
Universities and Sponsoring Organizations Involved
University of Maryland
Principal Investigators
Dr. Cinzia Cirillo
Dr. Javier Bas Vicente
Funding Sources and Amounts
USDOT: $100,000, University of Maryland: $50,000 (Match)
Completion Date
March 2019
Keywords
Equity, Welfare, Income Effect, Compensating Variation, Managed Lanes
