1. Transport Economics Resource Allocation in Transport

2. Why is Optimum Resource Allocation Not Possible in Transport?  1. significant externalities.

3. Why is Optimum Resource Allocation Not Possible in Transport?  1. significant externalities.  2. Imperfect competition e.g. bus companies operate regional monopolies.

4. Why is Optimum Resource Allocation Not Possible in Transport?  1. significant externalities.  2. Imperfect competition e.g. bus companies operate regional monopolies.  3. Railways are a natural monopoly.

5. Why is Optimum Resource Allocation Not Possible in Transport?  1. significant externalities.  2. Imperfect competition e.g. bus companies operate regional monopolies.  3. Railways are a natural monopoly.  4. Roads are a quasi – public good.

6. Why is Optimum Resource Allocation Not Possible in Transport?  1. significant externalities.  2. Imperfect competition e.g. bus companies operate regional monopolies.  3. Railways are a natural monopoly.  4. Roads are a quasi – public good.  (i.e. semi – non rival, semi – non – excludable)

7. How are resources allocated in Transport?  Resource decisions are taken by owners/managers.  There are two groups of these in the UK:

8. How are resources allocated in Transport?  Resource decisions are taken by owners/managers.  There are two groups of these in the UK:  1. The Private Sector: bus and railway operation decisions. i.e. what services to run, how often etc.

9. How are resources allocated in Transport?  Resource decisions are taken by owners/managers.  There are two groups of these in the UK:  2. Public Sector:  Infrastructure investment (especially roads). However projected investment needed is beyond the scope of the govt.  Public – Private Finance (PFI) (PPPs)

10. Transport 2010  See handout.

11. Public Private Partnerships  Joint ventures between private sector firms and public sector agencies.  The PFI is an example of PPP where:

12. Public Private Partnerships  Private Sector Firms  Design, build and finance projects. E.g. Channel Tunnel  Maintain infrastructure over 25 – 30yrs.  Public Sector  Pays an annual charge for the completed project over 25 –30 yrs.  Assumes ownership of the asset at the end of 25 – 30 yr contract.

13. Characteristics of Transport Investment  Very Expensive (£billions)  Infrastructure has a long life span (25+ years)  Costs are incurred in the early years, benefits over the life of the project