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Transportation Projects Are Charged Too Much

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Transportation costs too much


November 22, 2011

By David Levinson

Read More: http://blog.lib.umn.edu/levin031/transportationist/2011/11/transportation-costs-too-much.html


When I was growing up (in suburban Maryland), there was an ad on local TV from Crown Books. Founder Robert Haft asserted "books cost too much", which led him to create Crown Books, and helped put independent booksellers out of business decades before Amazon became villain #1 among the literati. Yet unlike independent booksellers, we weep not for the independent contractors and businesses that charge so much for transportation infrastructure, equipment, and operations.

• Signalized intersections (~$175K),

• Buses (~$400K),

• Roundabouts (~$300K),

• Loop detectors (~$5K) (ed. installed),

• Diamond interchanges (~$9M),

• Bridges to nowhere Houlton, Wisconsin (~$668M),

• Light rail lines (~$1.4B),

• High-speed rail lines (~$100B), etc.

Just some of the all quite pricey elements of transportation in early 21st century America. It sure seems like we should be able to build this cheaper. Think about it, $175K for 12 lightbulbs on a timer. What's going wrong?

1. Standards have risen. Our obsession with safety, features, environmental protection, and quality drive up the cost. Engineering design is often 20% of project costs. If only we would tolerate a few more deaths, a bus without AC, pollution, and frequent breakdowns, our initial costs would be lower. But when do reasonable investments become gold plating? Does the firetruck really need to do a 360 degree turn on the cul-de-sac, or can it back out?

2. Principal-agent problem. Public works agencies are spending Other People's Money, and so are less motivated to get value for dollar than an individual consumer on their own. This principal-agent problem prevails in lots of organizations, but especially so in public works where the bias is not to have a failure. There was an old saying in business, no one ever got fired for buying IBM. The same holds in public works, where rocking the boat with new or innovative technologies is not sufficiently rewarded.

3. Thin markets. There is no Amazon.com or eBay for public works. I cannot go on Amazon and buy a transit bus or an interchange. The internet has not driven down prices in this field the way it has in so many others. As a result a few vendors can collude or orchestrate higher prices than would be faced in a more competitive market.

4. There are in-sufficient economies of scale. When everything is bespoke, there is no opportunity for standardization and economies of scale. While many rail against cookie-cutter design, it is only with cookie-cutters that we get lots of cookies.

5. Projects are scoped wrong. We have investments that don't match actual demands. And this is not just for megaprojects. We have big buses serving few passengers. We have overgrown highways. We have a fear of building too small and having congestion or crowding so we build too big.

6. Benefits are concentrated, costs are diffuse. As a result, the known beneficiaries lobby hard for projects, but not just to build it, but to build it in a way that is expensive. Costs are diffuse, it is seldom worth the taxpayer's time to oppose a project just because of its costs, which are spread among millions of other taxpayers.

7. Decision-makers are remote. Remote actors cannot have precise information about local conditions, and in the absence of a free market in transportation (there is generally one buyer, who is generally a government agency), prices are not clear. As a result these remote actors misallocate because they are misinformed. This notion derives from the Economic calculation problem and Hayek's Fatal Conceit.

8. No one actually does B/C analysis. A recent headline in the San Jose Mercury News says:

.....




Marq2.jpg
 
Yes! Yes! Yes! The elephant in the room of transport planning.

Why does infrastructure cost so much these days?
Why does the cost of a transit line go up higher than wage inflation, materials inflation, etc.?
How did they manage to build the original Yonge subway out of farebox revenues? Why does the replacement of the existing Scarborough RT with LRT cost more today than the entire (similarly long) Sheppard subway project did just ten years ago?

Why did it take somebody this long to ask these sorts of questions?
 
Why DO buses cost $400k? For $200k you can get a motorhome the same size as a bus but with much nicer interiors.

Why does this
10597%20(4).jpg

http://www.travelandrvcanada.com/rvsoft/DealerImages/10597 (4).jpg

Cost half as much as this
20110107-danielle_scott_interior.jpg

Seriously?

Because the motorhome is not built to be driven for a million miles. Because it is not built to be repaired. Because it is not designed to be used by a hundred thousand people over its lifetime. Shall I keep going?

The same goes for a lot of the other infrastructure being built. 12 lightbulbs on a timer? Is the writer of the article that shortsighted?

Dan
Toronto, Ont.
 
Also, there are issues with procurement. In some cases (i.e. the entire Province of Quebec) a percetage of each project is earmarked for the mob. P3 procurement, while allowing projects to be kept off the government books, costs more because of the built-in profit for the developer, the built-in costs of the P3 procurement processes and the higher-cost of borrowing. P3 advocates will tell you that these expenses are made up for in lower costs elsewhere in the process, but the Canadian evidence is rather thin on the ground in this respect. In the UK (where P3s have been widespread since the 1990s), the Conservative government has just had to pull the plug on the entire P3 program because audit after audit has shown that the "value for money" proposition (which is the bedrock on which P3s are supposed to exist) is not real.
 

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