Definition of Optimal Road Network for Finland



Definition of Optimal Road Network for Finland

Authors

SIKOW-MAGNY C, LT Consultants Ltd, Finland

Description

In the transport sector, one of the most important, if not the most important question of the 1990's concerns efficient organisation of production and the use of transport infrastructure. The 1990"s could be named the "decade of changing organisations". R

Abstract

In the transport sector, one of the most important, if not the most important question of the 1990's concerns efficient organisation of production and the use of transport infrastructure. The 1990"s could be named the "decade of changing organisations". Reasons motivating these changes stem from research topics of previous decades, for the one hand, and from the increasing demand for efficiency and competitiveness that followed the political and economic changes in Europe and world-wide, on the other.

Some two decades ago, considerable research effort was used to study efficient allocation of resources in the public sector or cost-benefit analysis. The question of "in what sectors or projects to invest" was followed by a strong emphasis put on efficiency and productivity analysis of public production. The question became "how much more could be produced each year with the resources invested". Today the question is "how to organise - public or private - production and management to achieve even more". The question has economic, social, environmental as well as technological and psychological dimensions. In this paper, only economic and financial questions are covered.

Second, the 1980"s saw a major shift in the public policy in every sector. Centralised planning and strong public sector involvement in production of goods and services gave way for a more pure market economy. According to the "new" doctrine, the invisible hand - price mechanism - was to equilibrate supply and demand of goods and services instead of the public sector. This general trend concerned the transport sector also: public transport organisations were privatised in several countries, numerous subsidies were decreased or abolished. As to road transport, the development was somewhat slower although the benefits of congestion pricing were well known by economists since Jules Dupuit's texts in the 19th century.

Third, while until recently, large parts of the road network could be considered as a pure public good as congestion was minimal, the situation has changed dramatically in many countries lately. Important sections of the network - both on urban and inter- urban, less often on rural roads - are nowadays congested in many countries in Europe and in the world. In consequence these parts of the network can now be classified as impure public goods or as club goods (see e.g. World Bank 1994). This in turn raises the question for "club members" i.e. road users of founding a "club" e.g. in the form of a road fund and charging for the use of roads. Other discussion topics of the current decade, following the changing nature of roads, are: separation of infi'astructure and operations in railways, commercialisation of road agency, privatisation of construction, maintenance and rehabilitation activities, (marginal cost based) pricing of road use and internalisation of external effects, and the role of private financing.

In Finland, as in many other countries, the principle of transport sector covering its costs is gaining increasing popularity both from road users and environmentalists. The motives of these groups are, however, very different. Road users believe that they already pay more than enough in taxes whereas environmentalists are persuaded that a big share of environmental costs is not covered with current road use related taxes. In this paper, these arguments are studied for two different pricing regimes, viz. marginal and average (total) cost pricing. In chapter 2, the economically optimal marginal cost pricing is shortly discussed. Data and assumptions are described in chapter 3. Results of cost coverage calculations are shown in chapter 4 and conclusions are made in chapter 5.

Publisher

Association for European Transport