The effects of non-optimal pricing and investment policies for transportation facilities

Abstract

A simulation model was used to show the impacts of non-optimal pricing and investment timing policies for a major airport and an urban expressway. It was found that: the losses of economic surplus due to non-optimal pricing and investment policies were relatively small (less than 1% of the net present value of economic surplus for optimal pricing and investment), that marginal cost pricing covers the capital cost of all but the first increment of capacity, that higher user fees will permit the facilities to break even with relatively small losses of economic surplus, that marginal cost pricing has some effect relative to existing pricing policies in delaying the dates new capacity is required and achieving better capacity utilization, and that the shape of the cost function has a substantial impact on the amount of capacity required.