The Economics of Congestion: An Assessment of the Transportation Expansion (T-REX) Project in Colorado

Written by Brandon Figliolino

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.

References:

Albalate, D. & Bel, G. (2009) “What local policy makers should know about urban road charging: Lessons from worldwide experience.” Public Administration Review. 69(5): pp. 962-974.

Arnott, R. & Yan, A. (2000) “The two-mode problem: second-best pricing and capacity.” RURDS 12(3): pp. 171-199.

The Association for Commuter Transportation, UrbanTrans Consultants, & Parsons Brinckerhoff. (2004) Mitigating traffic congestion: The role of demand-side strategies. Washington, D.C.: Federal Highway Authority.

Bhattacharjee, S., & Goetz, A. (2002) “Impact of light-rail on traffic congestion in Denver.” Journal of Transport Geography. 22: pp. 262-270.

Detter, H. (2015) “Satisfying transportation needs in fast-growing metropolitan areas: mobility solutions for mega-cities in developing countries.” OPEC Energy Review: 39(4): pp. 418-444.

Denver Regional Council of Governments. (2015) “2014 Annual report on roadway traffic congestion in the Denver region.” Denver, CO: Denver Regional Council of Governments.

Font, A., Baker, T., Mudway, I., Purdie, E., Dunster, C. (2014) “Degradation in urban air quality from construction activity and increased traffic arising from a road widening scheme.” Science of the Total Environment. 497-498(November): pp. 123-132.

Gruber, J. (2013) Public Finance and Public Policy. New York, New York: Worth Publishers.

Johnston, V.; Haynes, W.; & Schultz, C. (2006) “The T-REX megaproject: Denver’s showcase for innovation and collaboration.” Public Manager. 35(2): pp. 3-8.

Louis Berger & Associates., & American Association of State Highway and Transportation Officials. (1998) Guidance for estimating the indirect effects of proposed transportation projects. Washington, D.C: National Academy Press.

Litman, T. (2017) “Generated traffic and induced travel: implications for transport planning.” ITE Journal. 71(4): pp. 38-47.

Lerner, W., & van Audenhove, F. (2012) “The future of urban mobility: Towards networked, multimodal cities of 2050.” Frankfurt, Germany: Arthur D. Little.

Siemiatycki, M. (2013) “Public-private partnership networks: Exploring business-government relationships in United Kingdom transportation projects.” Economic Geography. 87(3): pp. 309-334.