Improving the Efficiency of the U.S. Highway System Clifford Winston The Brookings Institution

Overview Summary comments on roads Raising revenue efficiently Reducing costs efficiently Spurring technical innovation

Highway Performance: Delays Average Annual Traffic Delay in Major Metropolitan Areas,

Highway Performance: Finances The road system is always “balanced” but that is misleading Revenue sources (the fuel tax) are volatile Costs can be reduced by deferring maintenance and expansion Innovation is rarely considered

Mode Shares

Revenues: Efficient Pricing Fuel tax is largely unrelated to motorists’ contributions to delay—doesn’t vary by time of day or location Efficient tolls (road pricing): mitigate delays raise revenues efficiently (self financing) improve land use (other effects) Redistributive effects exaggerated

Efficient pricing (continued) Fuel tax provides wrong incentives for trucks to reduce weight per axle—the primary source of pavement damage An axle-weight tax should be used to reduce maintenance costs Generally, the fuel tax is an inefficient tax (emission, safety)

Reducing Costs: X-Inefficiency Eliminate Davis Bacon (reduce labor costs) Optimize capital/maintenance cost tradeoff with thicker pavement Make contracting more flexible Improve oversight to reduce cost overruns

Reducing Costs: Improve Allocation of Funds Allocate highway expenditures to reduce total highway costs, accounting for users’ cost of congestion $1 of spending reduces users’ congestion costs 11 cents; under optimal allocation $1 reduces costs 25 cents Eliminate demonstration projects Use prices as efficient signals of investment—cannot build our way out of congestion

Innovation: Motivation of Privatization Vast pricing and investment inefficiencies in highway Efficient pricing and investment would produce billions of dollars in welfare gains Objectives of privatization: Reduce costs Make suppliers more responsive to users More rapid introduction of innovations

Developing Evidence to Make the Case for Privatization The experience with deregulating intercity transportation in the United States Foreign experience with privatization: private road builders Experiments in the US to show competition can develop