Transport Economics Theory,application and policy

The European Commission (June 2003) has estimated that 7500 kilometres of the road network in the European Union is blocked by traffic jams every single day.
In the same report, the Commission has also estimated that at the main airports in the European Union some 35 per cent of flights are delayed by at least 15 minutes as a result of congestion.
In 2003, private households in the European Union spent 748 billion euros, roughly 13.3 per cent of their total expenditure, on transport (EC, 2005).
In 2003, there were over 7.5 million workers employed in the transport sector of the European Union (EC, 2005).
The British government spent £13,241 million on the transport sector in the financial year 2002/2003 (ONS, 2004).
In 2004, there were 49,807 fatalities on the roads of the European Union (EC, 2005).

These are just a few indicators of the importance of the transport sector to the European Union’s economy and population; many more are assessed throughout this book. It is vital that economists have a solid understanding of this sector and are able to work within it, to the benefit of our society

The transport sector also acts as an excellent case study of many economic concepts that are vital for any serious student of the subject. Through the study of transport economics, we can be enlightened about traditional and modern theories of the firm; sometimes controversial government policy tools, such as deregulation and privatisation; the market failures of market power, externalities, public goods, inequality and asymmetric information; the various possible solutions to these problems; and the methodology that underpins all large public investment decisions. Focusing on this single sector allows us to view these concepts through our own experiences of them, as well as to understand the history and future of this sector that affect us all so significantly.

This book has been written not only to open up important economic theories, but also to aid in the development of a wide range of crucial economic skills in a setting that is of everyday interest. By using this book to study the transport sector, one is able to develop one’s ability and confidence in statistical and diagrammatical analysis; the design and evaluation of economic policies; simple, but fascinating, game theory; and investment appraisal. One is also able to develop one’s own, thoroughly reasoned, views and conclusions about the state that our transport sector is in; the policies that governments should adopt to shape it; and the future that lies ahead for it.

There are two general approaches that can be taken when using this book to study transport economics. The first is the linear approach, in which one simply follows the structure of the book: Part I outlines the setting; Part II opens up the economic theories that underpin the transport sector, applying them to the transport sector of the European Union; Part III explores the theories and causes of market failure in the European transport sector; Part IV assesses the range of possible policies that can be used to correct these market failures; and finally Part V offers some concluding remarks. This first approach is the most thorough. The second is the horizontal (or thematic) approach, in which one studies transport economics by focusing on each mode of transport in turn. An outline as to how such study may be structured is suggested in Figure I.1. If this structure is adopted, it is important that the relevant theory sections are read alongside.

Economics is a subject that should always be challenged. The theories and practices expounded in this book have all been developed over time by able economists and it is important that serious students of the subject refer back to their original works. However, the theories and practices should not simply be accepted unquestioningly; they should always be freshly compared to the real world to assess whether they are still effective in its analysis. This is the only way that our understanding can be refined and improved; and, perhaps more importantly, the only way in which the subject can be guarded from widespread acceptance of ineffective and even harmful policies. As Joan Violet Robinson, an eminent Keynesian economist and a pioneer in theories of imperfect competition (Harcourt, 1995), commented, ‘The purpose of studying economics is not to acquire a set of readymade answers to economic questions, but to learn how to avoid being deceived by economists’ (Joan Robinson, 1960).

Figure I.1 A suggested horizontal study structure

Economics is also a subject that should be applied in a practical way in order to see the society in which we live improve. Traditionally the subject was that of political economy; it was only relatively recently that the two parts were separated. This has arguably done the subject a disservice as many students of it are simply intellectually curious about the solutions to set economic problems, rather than seeking to use theory in the development of policy beneficial to us all. It is intended that, throughout this book, readers will question how the functioning and outcomes of the transport sector can be improved. Surely this is the purpose of the subject?

This book has been designed primarily for transport economics courses at university level, but it is also of great use for able A-level students of the topic. It is hoped that it will be an invaluable text for students of transport economics, human geography and transport engineering, and for those who simply have an interest in the sector. For those who like to have economic claims supported by mathematical proofs, there is a mathematical appendix included at the end of the book, which takes students beyond the introductory level.

Transport economics is an exciting branch of this classical subject, which is crucial to the future of our way of life. We hope that you will find this book not only enjoyable, but also helpful in expanding your understanding of the subject in an interesting and relevant way.