Category Archives: Economics

The Transportation Empowerment Act as a Model for Conservative Policymakers | The Agenda

Reihan Salam at The Agenda writes  The Transportation Empowerment Act as a Model for Conservative Policymakers. He quotes Enterprising Roads. He writes:

Meanwhile, other conservatives states might eventually establish public road enterprises, as the University of Minnesota transportation economist David Levinson has proposed:

The United States should follow Australia and New Zealand’s lead, and transform its state Departments of Transportation (or the highways divisions thereof) into separate, publicly regulated, self-financing corporate entities. Full-cost accounting—as already performed by Arizona’s Department of Transportation—constitutes a necessary first step in this direction. In making the transition, policymakers should strive to impose regulation only where absolutely necessary, to minimize the anti-competitive effects of any such regulation, and to leave social objectives to the government, thereby freeing road enterprises to focus on economic ones. Accordingly, road enterprises should be permitted to pursue cost-effective contracting and public private-partnerships as they see fit.

The new road enterprises should also be given latitude to make greater use of user fees—as opposed to general revenue—for funding their activities. Such charges are not just more efficient and equitable than traditional funding sources; if properly designed and implemented, they are also better suited to reducing congestion through effective pricing. Vehicle-miles-traveled charges, weight-distance charges and electronic tolling are all options that road enterprises should be free to pursue.

Over time, states will develop transportation strategies tailored to their particular circumstances. Densely-populated states like New York and New Jersey might choose to devote resources to creating Helsinki-style mobility networks while a state like Utah might instead choose to invest in a more expansive road network to support exurban development. States would no longer be hampered by the imperatives of national politics, and the most cost-effective, consumer-friendly state transportation bodies will find eager imitators across the country.

 

Bus Toll Lanes

Complementing recent discussions about transit systems, RF passes this along about Bus Toll Lanes. The idea is basically a HOT lane  (e.g. MnPass) where the transit agency helps finance the lane and gets an equity stake in the BTL, so revenue (profit) is dedicated for the bus service. Obviously, whether this pencils out depends on local conditions, demand patterns, costs, etc. This might work where a bus lane by itself would not have sufficient buses per hour to fully utilize the capacity, but coupled with a limited number of toll users it would, and it has enough toll users to justify installing ETC equipment.

Transit advocates may perceive that this is a highway use raiding what are seen as scarce transit funds. This is particularly an issue with grants; at least loans would get paid back. Sadly we are very silo-ed in the  transportation sector, so achieving multi-modal solutions like this is challenging. Ideally with a Transportation Bank, the mode would not matter, just whether it could pay back the loans.

Some reports from Tampa are here. They write:

Imagine a transit solution that reduces traffic congestion and pays for itself

By combining the individual strengths of transit and tolling, Bus Toll Lanes gives travelers a real choice by providing sustainable, competitive options.  This public partnership will fund the construction and operations of this transit solution.

“BTLs offer premium transit service on dedicated lanes added to local highways.

These dedicated transit lanes allow private vehicles to pay a toll to travel in the lanes.

With tolls collected electronically, (no toll booths, no toll booth congestion) all vehicles in the lane will maintain free-flow operating speeds.

Construction and operation of the Bus Toll Lane would be funded with a combination of public transportation sources (such as federal grants) and tolls collected from users.

Toll revenue collected from private vehicles are re0invested into the transit agency to at least cover the operational and maintenance expenses.

Combining short-term public transit capital project funding with long-term toll revenue and  real-world business practices, BTL is an innovation that creates a financially feasible, self-sustaining public transportation solution.”

More on “Transport as Utility”

Fred Salvucci, former Massachusetts Secretary of Transportation, and now at MIT writes in a comment on Transport as Utility:

This topic is very interesting. Our electric utility systems fail temporarily and rarely, and we are so shocked that there are political investigations when it happens. (Why did it take so long to restore service? Why did the disruption occur to begin with?) A few decades ago there was serious discussion of lifeline concepts to provide some base access to water or electricity, at low rates for everyone, but much higher marginal rates for usage above the base amount, so. One could introduce progressivity, and feedback against excessive use fairly efficiently.

Our transportation systems fail persistently to provide even basic service to the entire jurisdiction, and are dominated by history, ( let us do tomorrow what we did yesterday for a cost not too much higher than the rate of inflation, and we will be considered a success). Political control of gas taxes and transit fares heve led rates to rise much slower than inflation, with substantial lags between catastrophic failures, and severely constrained quality and quantity of service as a result, generally reducing accessibility in very uneven ways. It seems extremely worthwhile to explore in a serious and detailed way the possibility of treating transportation as a utility.

Rivalry and Anti-rivalry, Excludability and Anti-excludability

Walking home the other day, I invented the terms “anti-rival” and “anti-excludable”. These terms are not widely used, yet sadly I do not earn coinage credit.

Many things are important and essential that are largely done by the private sector. Many things are neither important nor essential that are done by the public sector. What differentiates in which sector a good or service is provided is not essentialness, nor its importance. Rather it is its excludability and its rivalry. A good is excludable if I can charge you for it and keep you from using it if you don’t pay. A good is rivalrous if my consumption prevents yours.

Goods that are both excludable and rivalrous are classified by economists as private goods, and are often provided by the private sector. Food is both important and essential, yet most Americans get food from private vendors in the US, ranging from the local farmer’s market to the largest Big Box store.

In contrast, goods that are neither excludable nor rivalrous are categorized as public goods. The classic example is national defense, which serves me whether I want it or not, and I pay with taxes. No private firm provides a nuclear defense in case my property is invaded by a foreign army. Over-the-air broadcasting is also a public good, though it is privately provided. Anyone with a receiver can get any over-the-air channel. In that case, broadcasting is funded not by taxes but by advertising. The model is switched and the viewer is the good being sold to the advertiser, since the market for advertising on over-the-air television  is both excludable and rivalrous (since time is rivalrous and the broadcaster can sell it to whomever they like for the market rate).

Goods that are excludable but not rivalrous are called club goods.

Goods that are rivalrous but not excludable are congesting or common pool resources.

The opposites of Rival and Excludable are generally taken to be Non-rival and Non-excludable. Yet, that is incomplete. Is the opposite of one zero or negative one? Hence the need for the ideas of Anti-rival and Anti-excludable.

The term Anti-rival is important enough to have its own wikipedia page. They credit Prof. Steven Weber from Berkeley with the idea from his book The Success of Open Source.

The concept of Anti-excludability was, as far as I can tell, first defined in a blog post by Pierre de Vries

He writes:

These definitions, however, don’t take into effect the network effects that have become so prevalent on the web. Social networks like amazon reviews and del.icio.us tags are not just non-rivalrous, as one would expect from knowledge; the more one uses them, the more value is created.

These goods are “anti-rivalrous”. Their use increases the amount available for consumption by others.

One can play the same game with exclusiveness. An “anti-exclusive good” might be one where the my giving it to you actively encourages you to pass it along to others. Viruses are one example; another is peer-to-peer software which someone cannot use without becoming a server node for others.

Anti-rival

We usually think of transportation as a tangible good, but it is also often an Anti-rival or Network good, and far more valuable the more people there are, until congestion sets in.

Your consumption of bike lanes is much more a complement for mine than a substitute. Your presence increases the demand for bike lanes (and thus network coverage – through a politically intermediated process) and spreads the fixed costs of construction across more users (if it were in fact user financed, in practice it is a complement because of lobbying the government, but that’s another story).

Your consumption of transit is a complement to mine, increasing the likelihood there will be a bus on the route I want to travel, and lowering my wait time. This is dubbed the Mohring effect in transportation.

Even your consumption of driving complements mine where network density is low, ensuring there will be a road network, which I could not afford myself. In short, not only is transportation usually non-rivalrous in the long run, it is anti-rivalrous. Even in the short run, significant congestion is the exception not the rule.

Anti-excludable

But how can such a good be anti-excludable?

We hypothesize the more people who walk, the more likely the next person will be to walk, not because the network changes, but because walking invites more people to walk, the act of walking acts as an advertisement for the act of walking. Similarly for biking, riding transit, or driving a car. The more you see it, the more plausible it becomes. I feel more comfortable walking the more pedestrians there are. I feel safer walking. Every pedestrian is a reminder to drivers that there are pedestrians. Every pedestrians acts as Eyes on the Street extending the words of Jane Jacobs which she applied to local proprietors.

 Filling in the Table

The northwest corner of the table below (suggested by de Vries is standard. Does it make sense to think about  the remaining five cells as de Vries suggests?

Table: Types of Goods

Excludable Non-excludable Anti-excludable [Includable]
Rival[Congesting] Private Congesting or Common Pool Resource Rally Good
Non-rival Club Public Viral Good
Anti-rival [Network] Social Network Broadcast Media Memetic Good

 

There are five cells in the table requiring names. I hereby coin the following:

  • Anti-Rival and Excludable: Social Network Good (For example, Facebook, it is excludable, but my membership makes yours more valuable)
  • Anti-Rival and Non-Excludable: Media Good (For example any broadcast activity (de Vries suggests Social Tagging) but really any type of social media like Twitter)
  • Anti-Rival and Anti-Excludable: Memetic Good (Perhaps Walking or Biking)
  • Non-Rival and Anti-Excludable: Viral Good (For instance as per de Vries, Peer-to-Peer software)
  • Rival and Anti-Excludable: Rally Good (Envision a rally on a public square (for instance to overthrow a government) which attracts protestors, but does get crowded)

 

Summary

In short there are some additional types of goods beyond rival/non-rival and excludable/non-excludable.

Anti-rival goods – I benefit if others use

Anti-excludable goods – I spread the use of the good to others every time I use.

Anti-rival, anti-excludable items include many ideas or memes. My possessing an idea does not prevent you from possessing it, so it is certainly non-rival. Unlike tangible property, ideas cannot be easily protected. (There are of course patents and copyrights, but those affect physical (or electronic) production, not what’s in your head). However many ideas are better if more people possess them, so we could class them as network goods, or anti-rival. Similarly many ideas are so good people want to share them. Like a juicy secret, telling someone induces it to spread more widely, making it anti-excludable.

The US needs better roads and bridges–and less congestion–but not a higher federal gasoline tax |AEIdeas

James Pethokoukis discusses (and endorses) Fix-it-First, Expand-it-Second, Reward-it-Third

Now the case for upgrading American transportation infrastructure isn’t about short-term Keynesian stimulus. It’s about long-term growth. “Places that have the greatest  accessibility, that enable more people to interact in less time, produce the greatest wealth,” write transportation experts Matthew Kahn and David Levinson in a 2011 report. More accessibility also means more economic mobility. A 2013 analysis from the Equality of Opportunity Project found climbing the ladder much harder in cities with longer commute times. Indeed, the monetized cost of US congestion is around $120 billion a year.

Study says Blue Line’s development impact is minimal | Star Tribune

Adam Belz in the Star Tribune writes: Study says Blue Line’s development impact is minimal, discussing a recent study by Sarah West and Needham Hurst of Macalester. I get quoted:

“My first sense is the Green Line is a better line,” said David Levinson, a civil engineering professor at the University of Minnesota. “It’s going to a denser area.”

Levinson said that the Green Line — and any subsequent additions to the light rail system — will also improve the value of land along the Blue Line, thus making it more ripe for development as the rail system grows and more people use it.

“That positive feedback system sort of kicks in, and it reinforces the growth,” Levinson said.

Emissions, Equilibrium, and the $10 Bill

On February 1 (at 6:05 am) I found a BART card with $1.35 of money still on it on Sacramento Avenue near the North Berkeley BART station. I picked it up and used it. In economics there is the parable that you never find $10 bills on the ground, because someone would have picked it up already. And that of course is true in a steady state where no one ever drops another $10 bill. Eventually they will all be picked up. But if someone does drop a bill, it is on the ground until someone picks it up.

The most charitable view of emissions, and it doesn’t matter which pollutant (e.g. the EPA criteria NOx, SOx, VOC, CO, PM10, PM2.5, or even CO2, among others), is that nature has not yet adapted to take advantage of the changed environment. If we increase nitrogen in the air slightly, we expect life will evolve over time to be slightly more nitrogen-phillic somehow. Those gene-lines that manage this evolution survive, those that don’t die off. The problem of course for big slow species like large mammals, or trees, is that it takes a long time (many generations, hundreds, thousands, tens of thousands of years) to evolve in a way that is well-adapted to the new environment. So after a sudden change or shock, a species may find its way to a new equilibrium, assuming there are no other shocks or external changes to the system, or be beaten to its appropriate niche by some other species, and go extinct.

But life itself is a disequilibrating process. Humans (and a few other species) for instance invent “technologies” (from using sticks for digging, or rocks for breaking things, to fire or iPhones). These technologies change the environment for humans and other species. If we did that and stopped, an equilibrium could possibly be found. But we continue to invent.

Further, the earth itself is not a closed system. We are being continuously showered by radiation from the sun (you know, light and heat and all), (which we adapt to, assuming it is roughly constant). The earth is also periodically showered by the detritus of the universe (meteors and asteroids). These add to the disequilibrium we face, and are reputed to have done in the dinosaurs.

So it is one thing to say life will adapt to the changes in the environment humans create, undoubtedly some life will do better than others unless we manage to extinguish it all. The question is how long it takes to come to a steady state ( without any external shocks).

Should we privilege the “steady state” ante-Industrial Revolution vs some current or future “steady state”. That seems to me an entirely arbitrary preference. By restoring life to some elysian past we are condemning those species that evolved faster and co-evolved with our technology (from chickens and cows to pigeons and squirrels, among the larger life forms). To say this is the perfect end-state now diminishes possibilities yet to be.

What is our objective? Preservation of the existing mix of species, restoration of some past mixture, maximization of total biomass, maximization of human biomass? Unless people can agree on what it is we want to achieve, the means (pollute, don’t pollute) will remain unsolved. To say “Save the environment” begs the question of which “environment” we are trying to save.

However, if we think of this in property rights terms, we can either define the commons as unowned (which quickly degenerates to a bad outcome), or define it as owned by everyone, as if we are all shareholders in the commons, and the proxy is held by the government (or governments) (1).

In that case, individuals (and firms) have no inherent right to pollute (which we might define as measurably changing the chemical composition of the air (water, land) at some fixed distance, say 10m, at any rate some distance such that breathing does not count as pollution, but tailpipe emissions do). Instead of trying to geo-engineer an ideal world, which is beyond our abilities anyway, even if we could agree upon on it, we would regulate the inputs to that future world in the form of regulating pollution. Nature will then evolve to whatever it evolves to, with a minimal additional influence from humans. We might hope it turns out ok.

The transition from the present “environment as an unowned commons” into which we can dump anything to an “environment as communally owned property” into which we can dump nothing without permission or penalty will obviously be a difficult one. Many processes that were efficient in the absence of pollution prohibitions and penalties are inefficient in their presence. But crisis creates opportunity, and for every old-style industry and behavior the new regime obliterates, a new technology and way of operating arises.

This is the logical outcome of the <a href=”https://en.wikipedia.org/wiki/Enclosure”>enclosure movement</a>, which has been steadily assigning ownership to the unowned over the course of human history.


(1) We could have an alternative, where the environment is somehow owned by selected individuals instead of as a commons or by nobody, but carving up the air is much harder than carving up the land, since air moves much faster than earth.

Lean Management of Toll Roads

Enterprising Roads: Improving the Governance of America's Highways
Enterprising Roads: Improving the Governance of America’s Highways

Washington State DOT conducted a Toll Division Operational Review in November 2013.  This report is quite interesting (and reality based, forecast traffic growth has been scaled back quite a bit).

There is further discussion by  Matt Rosenberg at Social Capital Review: WSDOT Report Muses on Private Transport Partners, who notes that Enterprising Roads was cited:

Drawing on Levinson’s paper, WSDOT says, “the theory…is that roads should be managed by independent enterprises that are charged with a mission of providing service to customers” like other “network utilities” which may be privately run but government-regulated, such as water, electric, pipeline, natural gas “and virtually all telecom and cable” systems.

In its report WSDOT stops far short of endorsing a private state transportation utility but does accent Levinson’s view that “the organizations that manage roads should be able to finance road construction and maintenance through the sale of bonds, without requiring direct consent from higher political authorities.” A variety of related alternatives are mentioned by WSDOT including “a public-private partnership contract involving toll rates where the contract holds the regulatory provisions including items such as a toll structure and associated performance criteria.”

Reaching into Levinson’s paper, the WSDOT report cites the New Zealand Transport Agency as one of the most full-fledged actual working examples of a publicly regulated, privately managed road utility – and says that data show its approach “has delivered large efficiency gains without compromising service levels.”

WSDOT’s public-private partnership program has for several years quietly inched the ball downfield on the idea of transportation public-private partnerships but not gotten far with that approach on major road projects due to legislative opposition.

The new WSDOT musings about a privately owned state road utility, regulated by the state, come as the Washington legislature continues to bog down on what is seen by key stakeholders as a much-needed state transportation funding package. If passed in the next few months a statewide transportation funding deal would probably be to the tune of $10 billion or $12 billion. Business, labor, local and regional governments in Washington state are vocally and energetically lobbying for it. Yet the package by all accounts will almost certainly feature at its core an increase in something that WSDOT correctly says in its new report “has been on a deep downward slide from some time” in terms of effectiveness. That’s the state gas tax.

The agency tolling division report states, “The purchasing power of the state fuel tax is declining. The fuel tax is a flat tax on each gallon sold. It is not indexed to inflation, and does not rise as the price of fuel goes up. In addition, Washington residents are driving fewer miles per capita, vehicles are becoming more fuel efficient, and new federal fuel efficiency requirements and the emergence of electric vehicles will accelerate this trend.”

Only eight of every 37.5 cents collected in state gas taxes per gallon of gas sold in Washington is allowed to go to state highways and ferries “including maintenance, preservation, safety improvements and congestion relief.” Adjusted for inflation based on a 77 percent hike in the construction cost index since 2001, state gas tax revenues have actually dropped by nearly half since then and related revenue projections for 2007-2020 revised downward by $3.7 billion as a result, WSDOT reports.

It is worth noting that user fees are not a left-right thing (or not for most of the political spectrum). They are supported by both Greens and Libertarians.  This is an efficiency notion. We should all want the right amount of travel, not more, not less. (We may of course disagree on how much is efficient, or how to weigh externalities, but we hopefully agree that some things are just dysfunctional.) We might also want beneficiaries to cover their costs, especially if they can, which is in general the case with roads.

It is also worth noting that Road Enterprises need not be privately owned (they aren’t in Australia, New Zealand, or Vancouver), they can be publicly owned corporations. The key is political independence. This needs to be done carefully. The Port Authority of New York  is an unfortunate example of pseudo-independence where politics runs amok without accountability. There are better examples.

Also there are many notions of equity in transportation, and not all of them can be satisfied simultaneously, and there is no agreement about which is morally preferable. Beneficiary pays is certainly a reasonable idea that aligns equity with efficiency. The question to be asked is “does the new policy improve things compared to the baseline”, not whether it is perfect.

Basic Employment vs. Sectors with Spillovers

Standard urban economics discusses Economic Base Theory. A nice definition is via Tim Chapin:

The economic base technique is grounded in the assumption that the local economy can be divided into two very general sectors: 1) a basic (or non-local) sector or 2) a non-basic (or local) sector.

Basic Sector: This sector is made up of local businesses (firms) that are entirely dependent upon external factors. For example, Boeing builds and sells large airplanes to companies and countries located throughout the world. Their business is dependent almost entirely upon non-local firms. Boeing does not sell planes to families or households locally, so their business is very much dependent upon exporting their goods. Manufacturing and local resource-oriented firms (like logging or mining) are usually considered to be basic sector firms because their fortunes depend largely upon non-local factors, they usually export their goods.

Non-basic Sector:The non-basic sector, in contrast, is composed of those firms that depend largely upon local business conditions. For example, a local grocery store sells its goods to local households, businesses, and individuals. Its clientele is locally based and, therefore, its products are consumed locally. Almost all local services (like drycleaners, restaurants, and drug stores) are identified as non-basic because they depend almost entirely on local factors.

Economic development practice is to entice/enhance “basic” industry. The example of Boeing is especially timely, given the recent issue of Boeing potentially moving airframe production if it didn’t get labor givebacks. I don’t imagine most of the places that Boeing was considering moving to have an airframe sector, or upstream or downstream vendors or customers, or a workforce skilled in airframe manufacturing, which would generate benefits beyond “jobs, jobs, jobs”. Similarly, ED advocates often argue for new infrastructure , despite at best weak evidence that in a mature (roadrailtransit) network there will be much accessibility gain, and thus little resulting economic development.

But the key point to remember from welfare economics is that everything is non-basic at a global level, and everything is basic at the household level. While it might be locally preferred to have more basic employment (we get money in exchange for stuff), that makes no difference on the global scale. Economic development practice is parochial (which is no surprise as it is funded by place-based local and state governments).

Yet that is not to say that local development is neither good nor bad. The reason it might actually be better to have local concentrations is because of various types of economies: in particular economies of scale of various kinds (including economies of agglomeration, which in places with very large employers, may all be internalized), and network economies. These economies produce spillovers, not just for the firm, but also for upstream and downstream supplies and customers, and potentially for competitors as well. I will call these Spillover Sectors.

Economies of scale mean that the cost goes down the more that is produced, (economies of scale are within firm, economies of agglomeration are within place, but between firms), so we can lower global costs if we specialize. The core reasons for this include large fixed costs associated with plants.

Reasons for Economies of agglomeration are also plentiful (from the Transportation Economics Wikibook):

Type of scale economy Example
Internal 1. Pecuniary Being able to purchase intermediate inputs at volume discounts
Technological 2. Static technological Falling average costs because of fixed costs of operating a plant
3. Dynamic technological Learning to operate a plant more efficiently over time
External or Agglomeration Localization Static 4. Shopping Shoppers are attracted to places where there are many sellers
5. Adam Smith Specialization Outsourcing allows both the upstream input suppliers and downstream firms to profit from productivity gains because of specialization
6. Marshall labor pooling Workers with industry-specific skills are attracted to a location where there is a greater concentration.a
Dynamic 7. Marshall-Arrow-Romer Learning-by-doing Reductions in costs that arise from repeated and continuous production activity over time and which spill over between firms in the same place
Urbanization Static 8. Jane Jacobs innovation The more that different things are done locally, the more opportunity there is for observing and adapting ideas from others
9. Marshall labor pooling Workers in an industry bring innovations to firms in other industries; similar to no. 6 above, but the benefit arises from the diversity of industries in one location.
10. Adam Smith division of labor Similar to no. 5 above, the main difference being that the division of labor is made possible by the existence of many different buying industries in the same place
Dynamic 11. Romer endogenous growth. The larger the market, the higher the profit; the more attractive the location to firms, the more jobs there are; the more labor pools there, the larger the market—and so on
12. Pure agglomeration Spreading fixed costs of infrastructure over more taxpayers; diseconomies arise from congestion and pollution

Source: World development report 2009: reshaping economic geography By World Bank, Adapted from Kilkenny, Maureen (1998) “Economies of Scale” Lecture for Economics 376, Rural, Urban, and Regional Economics, Iowa State University, Ames Iowa

Economies of scale are so pervasive we don’t notice them. Every road is an instance of economies of scale, we walk/ride/drive along roads because it is faster than going across unimproved space, even though it is less direct, but we individually could not afford to build the road, so we share the fixed costs with lots of people. The cost per person for roads is lower the more persons we spread the cost over. Economies of scale may also be played out (exhausted) at the margins we observe. Just because we had economies of scale in the roads we have built to date does not mean there are still economies of scale waiting to be picked up off the street like the proverbial $10 bill.

Two economists are walking down the street when one points to the ground and says, “Look, a ten dollar bill!”

The second economist replies, “That’s crazy. If that was a ten dollar bill someone would have picked it up already.”

In fact, most of the easy things have been done. Not to be as pessimistic as Tyler Cowan, but it is true that we pick the the projects with the highest Benefit/Cost ratios (low-hanging fruit) first, and work our way down-the list (up the tree), until the cost of building the project outweighs the benefits (the cost of getting the fruit outweighs the pleasures of consuming it). Clearly new projects are often on the low B/C side of the equation.

Network economies mean that the value of something increases the more people who use it. These are also so pervasive we don’t always notice them. The more people who use MSP airport, the better the airport is for me, because it will have more flights. Roads are also examples of network economies, as the more people who use the road, the higher quality road we will build and the more accessibility (by auto) I will have. Thus we have interstate highways because we have hundreds of millions of drivers. If there were only one driver, even Bill Gates, we would not have an interstate system.

So to get back to types of employment. When doing economic development we should not be thinking about Basic vs. Non-basic. We should be thinking about employment that has benefits from concentration, either economies of scale and agglomeration, or network externalities, or both, and then working toward establishing concentrations of those sectors to maximize the benefits to society.  This usually means considering where local strengths already are, rather than starting from scratch. Complement the existing rather than dropping in an alien business.  The job multiplier from two jobs paying $75,000 may be the same, but the one in a spillover sector will lower costs for others in the sector and/or improve benefits.  It means not going after projects just because they generate jobs, but encouraging firms to relocate into specialist concentrations where there are spillover benefits from those concentrations.

In contrast, sectors which have losses with concentration (think natural monopolies, where competitors split the market so that no firm can recover fixed costs), should be encouraged to remain dispersed.

Causality in the Link Between Road Network Growth and Regional Development

StatePanel image

Recent working paper:

  • Iacono, M. and D. Levinson (2013) Causality in the Link Between Road Network Growth and Regional Development

    This paper investigates the relationship between the growth of road networks and regional development. We test for mutual causality between the growth of road networks (which are divided functionally into local roads and highways) and changes in county-level population and employment. We employ a panel data set containing observations of road mileage by type for all Minnesota counties over the period 1988 to 2007 to fit a model describing changes in road networks, population and employment. Results indicate that causality runs in both directions between population and local road networks, while no evidence of causality in either direction is found for networks and local employment. We interpret the findings as evidence of a weakening influence of road networks (and transportation more generally) on location, and suggest methods for refining the empirical approach described herein.