Transportation costs too much

Marq 2 Transitway in Minneapolis
Marq 2 Transitway in Minneapolis

Crossposted at and
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.
Transportation costs too much.
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.

are 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?
I have several hypotheses (please add others in the comments):

  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 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:Bay Area transportation projects to be judged on benefits vs. costs – :

    “”Talk to any business person about not having a benefits-vs.-cost discussion and they’ll say, ‘Duh, you mean you don’t do that?’ ” said the commission’s executive director, Steve Heminger. “They insist on it, but in the transportation profession it is not all that common. … This levels the playing field.””

    Heminger was appointed executive director in 2001 and hired in 1993, and only *now* they are doing benefit/cost analysis. At any rate, looking at the ratios presented in the story, they are clearly doing it wrong. Whether it is common or not I will leave to politicians or political scientists, however it has been the textbook procedure for a very long time. I suppose it is progress to at least acknowledge using B/C analysis even if the implementation is flawed

We are simultaneously spending too much and not spending enough. Because we mis-prioritize where the money is spent, we have inadequate resources for other things. We cut corners.
My favorite example is the bus stop sign which says “bus stop”. While this is better than no bus stop sign, or one that said “Buses Don’t Stop Here”, it is still quite uninformative, it doesn’t say which bus stops here, when it stops, where it is going, what is the frequency, when it operates. Why don’t we have better bus service operations? In part because the scarce resources that could be devoted to that are instead spent on expensive new capital investments that serve a much smaller fraction of the population.
We can all think of things that we would like the transportation system to do, that are technically feasible, but it doesn’t, because resources are scarce. They are scarce because of misallocation.
The costs of gold plating are several. Money spent on project X cannot be spent on project Y. This is the monetary opportunity cost of misallocation. Land devoted to project X cannot be devoted to project Y. More land also means greater distances to traverse. This is a spatial opportunity cost.
There is a tension between the risk of gold plating (focus on benefits to the exclusion of cost) and of corner cutting (focusing on costs to the exclusion of benefits). But there is available to us a balance, building something which maximizes the difference between benefits and costs, not just looking at benefits or costs. Insufficient attention is placed on the trade-off, too much on the ends by advocates of one side or the other.
When we are out-of-balance, people distrust that their tax money is wisely spent. If people see lots of examples of mis-expenditure, they will cut how much they are willing to allocate to transportation. Mis-expenditure thus causes the system to deteriorate in two ways. First it reduces inputs to the system, money that could be spent. Second it allocates money away from genuine public needs (starting with adequate maintenance and operation of existing facilities) and towards unnecessary wants, thereby increasing unmet needs.
We need to break this cycle of distrust if we want to adequately fund transportation needs (not wants). This requires institutional changes in how transportation services are provided. Asking the same people for more money is unlikely to be very successful. As has been mis-attributed to Benjamin Franklin: Insanity: doing the same thing over and over again and expecting different results.

10 thoughts on “Transportation costs too much”

  1. I am really hoping some of your points were meant to be sarcastic. Are you really implying we should reduce costs of design – “If only we would tolerate a few more deaths.”? Do you really think we shouldn’t have bus stop signs? Do you realize the cost of a loop detector includes the material and labor to install it.
    You may have a point with some of your hypotheses, but you obviously have no practical design or construction experience.

  2. Very observant but better still would be concrete proposals for better planning or lower costs or, why not, both. I have a favorite, actually made of concrete. The highway circling the periphery of Mexico City, called for some unknown reason the Periférico, is being double decked. These segments are basically precast concrete/rebar sections, trucked in and bolted together. Sort of a lego assembly strategy.
    My proposal: we import these. That is, when double decking a highway here in the USA, we order it (to whatever specifications we like, so no need to tolerate more deaths) from the United Mexican States. Note that plenty of US cars are imported from Mexico: VW and Nissan for ages now. Why not highways, I ask? It has to be much, much cheaper. You’re welcome.

  3. I thought David had it right. We overweight many benefits — including safety. Most of our transportation solutions emphasize a capital perspective and thus can over estimate costs. Part of this comes from the structure of federal programs, with money for capital. Part comes from an emphasis on “needs” analysis. Adding a few economic principles can help focus spending on more cost-effective solutions. For example, applying a benefit cost ratio of 2.0 to the national estimate of highway needs (from FHWA’s Conditions and Performance report) would reduce spending requirements by 40 percent.

  4. Transportation does cost a lot, but to really figure out why and how to control it, you need to look at the elements that go into a project. First there is planning and design – when I started in this field 30 years ago, that would be about 10% of a project. I’ve seen consultant proposals now that can go up to 30% – why? And the other side of this is because their fee is a percentage of the construction cost, there is an incentive to make the project cost more. Not saying they all do that, but it’s not in their best interest to keep a low project cost. So design and planning are definitely areas where costs could be reduced by having the right oversight and forcing consultants to keep costs in line or just designing in house if possible.
    The other side of the cost are the materials and labor and equipment for the actual project. These of course have gone up over the years for many reasons. And scarcity of materials is a factor. When we were competing with the housing market for materials, costs were higher than they are now for some materials. Also when there is a disaster affecting the plastic plants in the south, our piping costs go up. Sometimes we can plan around these market fluctuations, but sometimes we cannot. And most times we have no control over material pricing.
    There are cost increases due to the regulations – the ADA and environmental requirements are important for us as a society, but they can add significant cost to a project. For example in Illinois, our legislature has decided we cannot handle dirt as we had in the past. Now we have to extensively test and possibly landfill dirt in a hazardous disposal landfill if the work is anywhere but in a residential neighborhood. This is going to add a tremendous amount of cost to projects. Is it worth it? Experts say no, but legislators said yes.
    I do see engineers performing cost/benefit analysis. The problem is that this is not done at the legislative level before laws are passed that drive up costs. (See above paragraph)
    As for keeping costs in line, yes, we are conservative, but most engineers I know who actually work in the government are very careful with keeping costs down. However, I think a formal method of oversight might be a good idea – I just discovered a bid put out by a transit agency in Illinois that seems to have awarded a project to the highest bidder at about $4M which was about double all the other bids. How does that happen and why – that certainly does not help costs and probably should have been publicly justified.

  5. Transportation planners also must demonstrate their projects will address potential peak traffic 20 years down the road, when it is assumed congestion will have increased dramatically. That requires big projects. This is how electricity planning used to be done.Then we discovered that reducing demand for electricity –conservation measures– actually reduced the need for new power plants. Similarly, building less costly sidewalks, more compact communities and encouraging transit use will reduce the need for bigger highway projects. Designing projects that solve traffic problems for 10 years, assuming conditions could change for the better, would save hundreds of millions of dollars. We call that “practical design.” Which might be why there are so few advocates for it: we’ve lost the ability to be practical.

  6. I’m conditioned to shrug when I find out a certain thing costs as much as it does, but there is something wrong with us when a stoplight costs as much as a house and a bus costs as much as a nicer house.
    I like your theories; I’d like to go to more meetings where I can stand up and say what everyone’s thinking about cost. Won’t win me friends but could be fun.

  7. That $175K for a signalized intersection is at the extreme upper end of what these things cost, and likely includes ROW acquisition and what not. Your “12 lightbulbs and a timer” will be at the very low end of an installation and doesn’t come close to representing a $175,000 system.
    Ruggedized timer circuits for traffic lights cost a few hundred dollars plus installation. If you need to buy a few square feet of land at the corner to place your cabinet pad, add a few hundred dollars to the project cost. If you need to remodel a corner gas station and move the underground gas tanks to install your lights, I can see a traffic light project going to $200K.
    If you want to go gold plated, actuator circuits with radar detectors that can distinguish between different vehicle types run about $5000. Loop detectors are about $500 (not the $5000 you mention — you’re looking at the wrong cost in your cited link).
    Your bus costs are about accurate, though operating costs are what kills transit agencies. Design standards and economies of scale probably apply here.
    Roundabouts almost always need additional ROW, so ROW acquisition is probably a big part of any roundabout project cost. Ditto diamond interchanges.

  8. I just left a city with a non-gold-plated system: very low fares ($1 per ride) but hourly service and buses break down relatively frequently (once or twice a year on my line, which, in a system with a few dozen bus lines, means maybe 50 a year). This lack of reliability is one reason for the system’s dismal reputation.

  9. How about what in Boston’s Big Dig, appeared to be GOP driven policys to shut down Gov’t depts with expertise, and outsource project management to private contractors.
    In previous years, such projects were buildings (Tammanys famous courthouse )perhaps there is more scope to get rich on rail then on another court house.
    how about graft, which can take so many forms
    Boston’s big diq was also some sort of collusion between the politicians and the labor unions and contractors and real estate developers; every one got fat off of tax dollar paid construction.
    That the main effect of this hideously $$ project was to allow wealthy people from the western (newton, weston, dover) and northwestern (concord, lincoln, wenham) suburbs to get to Logan International was rarely if ever mentioned; instead the citizenry were told (including by NPRs local show the connection) that they should be gratefull that 15 billion dollars resulted in a few acres of not that great park..
    NYC is a special case
    I had a friend who got a job in a lab. One thing you do in a biotech lab, is use a lot of dry ice (carbon dioxide). So he buys a dry ice chest, basically a giant cooler, and asks the guy in the lab down the hall where he gets his dry ice from.
    So my friend calls up the recommended vendor, and gets a quote for a standing order – dry ice comes in 30pound blocks, so many blocks/week, that is way, way to high
    so my friend takes out the yellow pages (this was a while ago) and calls up some of hte many dry ice vendors who are listed, and says, I’d like a quote for a standing order.
    No problem says the vendor, how much, right, where..uh, we don’t service that area, you have to get your dry ice from so and so
    No my friend says, I called so and so, they are to $$$, I’d like to order from you.
    NO, says the vendor, you don’t understand we *don’t* service that area (eg, mob controlled)

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