This paper aims to explain the market failure that led to
the creation of the Transportation Expansion (T-REX) project in Colorado. Using transportation research, this paper
will measure the T-REX project’s successes, and shortcomings, and apply principles
of economics to the reasoning behind the policy implementation. Lastly, this paper outlines which policies can
help reduce the likelihood of a future market failure occurring.
Traffic-Induced Market Failure
According to Litman (2017),
“traffic congestion tends to maintain equilibrium” because “traffic volumes
increase to the point that congestion delays discourage additional peak-period
trips (p. 1). However, Johnston, Haynes,
& Schultz (2006) argued that during the late 1990s, Colorado’s population
was growing at a fast pace, to the point where demand for transportation
options exceeded the available supply (p. 4).
“Traffic congestion was a major issue” Coloradans faced because of the
growing population (p. 4).
With the influx in people
moving to the state came a growth in vehicle usage, which increased the levels
of congestion on highways. One section
of highway southeast of Denver was particularly impacted by the population
shift (p. 4). The number of cars along
the I-25 and I-225 corridors exceeded the maximum daily vehicle capacity
(180,000 vehicles per day) every day (p. 4).
Gridlock along the corridor was imminent without intervention by the
government.
The increase in vehicle
congestion along the corridors caused a market failure. Gruber (2013) described a market failure as
“a problem that causes the market economy to deliver an output that does not
maximize efficiency” (p. 4). In a
perfect economy, commuters’ travel times would be at equilibrium with the
number of transportation options available to them. Commuters would be satisfied with their
travel times, and the government would have enough transportation options
available without having excess capacity.
In this instance, the demand by commuters for convenient travel times
was out of equilibrium with the supply of transportation options
available. The highways became burdened
by the number of commuters to the point of disequilibrium (see
Appendix A). Johnston et al. (2006)
noted that the corridor’s increasing traffic, if left unaddressed, would cause
complete gridlock (p. 4).
Policy-makers understood the implications that congestion
could have on the economy. According to
Detter (2015), traffic congestion is a “major concern for policy-makers”
because “congested roads create opportunity costs and slow economic
development” (p. 418). If travel times
became too burdensome in Denver, consumers might not find value in spending
time commuting to purchase goods and services.
Berger (1998) found in his assessment of congestion that “business sales
volumes” decreased when areas were heavily congested (p. 79). Commuters opted-out of participating in the
economy when it became inconvenient.
This created what Gruber (2013) identified as “deadweight loss”: the “reduction
in social efficiency” (p. 51).
The traffic congestion was not just deterring individuals
from participating in the economy. Detter argued that congestion leads to an
increase in air pollutions emitted by idling cars and increased car usage (p.
418). Gruber (2013) also noted that air pollution is considered a negative
externality because drivers do not “bear the costs” of the effects of increased
pollution has on the community (p. 122).
Because of these issues, policy-makers had to address the congestion
problem along the corridors, or risk harming local economies and reducing the
well-being of residents in Denver.
Solutions
Agencies in Colorado that
focused on transportation, including the Regional Transportation District
(RTD), the Colorado Department of Transportation (CDOT), and the Federal
Highway Authority (FHA), had options to address congestion (Johnston et al.,
2006, p. 6). Policy-makers could have
opted to reduce travel times by adding additional highway lanes. Yet, according to Arnott & Yan (2000),
increasing highway capacity perpetuates congestion through “latent demand” (p.
177). Highway expansions “alleviate
congestion and reduce the generalized cost of driving,” which encourages more
vehicle use (Litman, 2017, p. 2). In
Colorado, a major investment study was conducted, and while it determined that
additional lanes were necessary, they would not resolve the problem entirely (Johnston
et al. 2006, p. 4).
The transportation agencies understood
that while the automobile was an important transport method, their solution to
the market failure needed to include mass transit. There was a “diverse array
of [transportation] users” that required more commuting choices (Lerner &
von Audenhove, 2012, p. 16). When
determining the course of action, “all parties involved refused to advocate for
an incomplete solution” that did not include choices (Johnston et al., 2006, p.
5).
To rectify the potential
indirect effect of increased traffic due to additional highway lanes, Johnston,
et al. noted that the agencies, branded together as “One DOT”, decided upon a
policy of “inter-modality” (pp. 4, 8).
This meant that in addition to adding highway lanes, One DOT’s T-REX
policy would incorporate bus transit and light-rail transit (p. 8). These transportation methods would serve as
substitutions for driving along the corridor.
Consumers will always try to
“maximize their utility” through the choices they make (Gruber, 2013, p.
26). By offering multiple substitutions
to driving, One DOT argued that they would be able to improve the well-being of
all commuters by reducing congestion and eliminating long travel times,
indirectly reducing air pollution, too (Johnston et al., 2006, p. 6). All commuters would have a choice on how to
travel.
Short and
Long-Term Implications
The T-REX project can be considered a success on multiple
fronts. One DOT used a “design-build”
approach, which allowed the project to be built simultaneously as it was
designed by a single contractor (Johnston et al., 2006, p. 6). The collaborative project management method,
known as a private-public partnership, used by One DOT “lowered transaction
costs” and “encouraged innovation” (Siemiatycki, 2013, p. 309). The design-build model used by One DOT helped
the project finish under-budget by $39 million dollars and under-time by two
years (pp. 6, 8). The costs to society,
in the bonds they approved to finance the project, and the time they waited for
the solution to be implemented, were reduced (p. 5).
The solution also resolved the congestion issue facing
commuters along the corridor. In a
traffic study conducted by Sutapa Bhattacharjee & Andrew Goetz (2012), the
corridors saw “reduced levels of traffic” (p. 269). The light-rail “alleviated pollution” caused
by excess cars on the highway, too, which was considered a positive consumption
externality (p. 269). Bhattacharee and
Goetz’s research also determined that “light rail kept the rate of increase of
traffic low” (p. 269). The T-REX project
accomplished its mission: it reduced congestion by increasing the supply of
transportation options available to commuters.
While the highway expansion was successful in reducing
congestion in the short-term, it did not prove to be effective in the
long-term. The T-REX project, in
retrospect, failed to accurately accommodate commuter trends. In a study conducted by the Denver Regional
Council of Governments (2015), the I-25 and I-225 corridors were considered
“congested” once again, just eight years later (p. 6). The project also produced a negative
externality in air pollution; as the number of vehicles on the highway
increased after it had been widened, so too did the air pollution, negating the
positive externality that came from light-rail riders leaving their vehicles at
home (Font, Baker, Mudway, Purdie, Dunster, & Fuller, 2014, p. 123). This suggests that the costs for driving were
still too low to positively influence commuters to use light-rail and bus lines
instead, and that there was a failure on the part of One DOT to promote the bus
and light-rail options as viable alternatives to driving.
Solutions-Focused
Future
Highways and roads are impure
public goods. They are provided by the government, are free to use, and
are not excludable (Gruber, 2013, pp. 185-186). As such, highways can be subject to free
riders: commuters who use them more than others accelerate their wear-and-tear,
while “contributing less to their provision” than those who drive on them less
frequently (p. 189). One solution to
reducing congestion could be privatizing part of the highway system. Tolling during peak times would be a
disincentive for this behavior, making “only drivers with high estimations of
the value of the journey” use, and pay, for the highway (Albalate & Bel,
2009, p. 963). In doing so, the
government “prices time costs and delays (i.e. negative externalities) that are
imposed on other road users” who drive on the highway (p. 963). This frees up the lane(s) and ensures steady
traffic flow for those willing to pay.
The privatization of some lanes should be accompanied by an
extensive push for public transit. One
DOT can “integrate the travel value chain” by increasing the convenience of
commuting via bus or light-rail (Lerner & van Audenhove, 2012, p. 6). Having more bus and light-rail routes
incentivizes commuters to use alternative modes by making them more
accessible. Since they have “high
transportation capacity,” the entire transportation network becomes more efficient
(Detter, 2015, p. 435). Busses, in
particular, are an excellent short-term investment because their costs are
lower than providing additional infrastructure (p. 437) (See Appendix B).
One DOT can also improve the ways commuters get around
without investing in infrastructure.
During the construction of T-REX, One DOT promoted vanpools, carpools,
and bussing through their TransOptions program (The Association for Commuter
Transportation, UrbanTrans Consultants, & Parsons Brinckerhoff, 2004, p. 79). The program helped get over 1,200 commuters
bus passes and vanpool/carpools, which resulted in reduced vehicle miles
traveled along the highways (p. 79). At
a cost of $3 million, the price of this program was much less than the total
cost of the T-REX expansion (p. 79). This
makes TransOptions a viable choice for reducing congestion.
Conclusion
Detter (2015) recognized that “urbanism has forced
policy-makers around the world to find solutions to satisfy the growing demand
for transportation services” (p. 418).
Colorado faced that challenge in the early 2000s, and understood the
importance of reducing congestion and traffic by meeting the needs of all
commuters. While the T-REX project was
completed under-budget, under-time, and promoted light-rail and bus transit, it
failed to become a feasible long-term solution to traffic, due to the induced
demand brought on by the additional highway lanes. Future policies should focus more on creating
opportunities for commuters to leave their vehicles at home by promoting
alternative modes of transportation. Doing
so will bring balance to the supply of transportation options and the demand of
commuters for reduced travel times.
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