The Components Of Transportation Economics

I. INTRODUCTION

Transportation economics pertains to a branch of economics that deals primarily in resource allocation and behavioral principles associated with the actions of independent factors that brings predictable economic outcomes (Small 1-2). Inherent with the function of economics, it informs the field of management, public administration, and infrastructural planning in the establishment of feasible transportation policies.

Meanwhile, the economics of the transportation industry revolves around diverse policies that determine the manner in which mechanisms of economics work. These policies primarily includes travel demand, costs, pricing, investment, industrial organization, and the like. However, this paper covers only the three

user time, operator wages, capital, etc.) that is consistent with Becker’s household production theory, which treats all these components as values obtained at market prices much like the values identified in demand analysis (Small and Verhoef 56). In transportation cost analysis, there are two classes of outputs possible: the demand-related (final) outputs (DRO); and the supply-related (intermediate) outputs (SRO).

The DRO measures the trip quantity together or separately from the trip extent, thus, corresponding to the variables used in the travel-demand analysis (Small and Verhoef 59). When performed completely, it can identify all types of trips involved (e.g. at peak rush hour in the afternoon). These outputs may be aggregated into specific categories, such as total passenger trips, passenger miles, unlinked passenger trips, revenue passengers, and the like. From the perspective of the transportation company, the DRO is outside its control, though.

Meanwhile, the SRO are outputs, which combine with user time to produce the DRO. From the perspective of the transportation firm, the more relevant value is the cost of producing these trips, measured as vehicle-kilometers, vehicle-hours, seat occupancy rate, etc. Oftentimes, it is treated as bought and sold intermediate goods (Small and Verhoef

Congestion pricing can be approached in two ways, such as first-best pricing (FBP) and second-best pricing (SBP). In the FBP approach, all relevant constraints in resource and technology are embodied in the total cost. Meanwhile, in the SBP approach, feasibility constraints are added to the total cost when maximizing net benefits. Optimal toll pricing, for instance, determines the differential pricing based the difference between the marginal cost and the average variable cost