Highway capital is a major component of public capital, both in terms of impact on productivity and magnitude of expenditures. The role of highway capital seems especially important in Minnesota, because the per capita investment in streets and highways is significantly higher than the national average. Compared to the national average, per capita spending on construction and maintenance was 58% higher in Minnesota from 1992 to 1996. This study focuses on the benefits of highway capital, especially through its effects on the productivity of Minnesota firms but also on through the benefits Minnesota consumers receive because of increased accessibility. Traditional methods of assessing the significance of investments in roads examine the costs or the use of roads, and not the benefits derived from them. Measures of costs include the size of construction and maintenance expenditure or the cost of replacing roads. Measures of use include vehicle-miles traveled or ton-miles of freight hauled. Quantifying the economic benefits derived from roads is more difficult because benefits must be inferred from macroeconomic effects or choices made by individual firms.
This report offers an economic analysis of the impact of road pricing. Optimal pricing of congested roads would produce substantial revenues and efficiency gains. However, the direct effect of road pricing would be to make most drivers worse off, particularly those with low incomes. In the Twin Cities, pricing all congested roads optimally would generate $1.50-$1.75 in revenues for each dollar of additional costs to travelers. The revenues offer a source of potential funding to compensate those who lose while leaving appreciable toll revenues for highway improvements and other public purposes. The authors believe that unless such toll-revenue redistribution occurs, opposition to road pricing will be substantial.
Researchers calculated network equilibria for a variety of congestion-pricing and analyzed these potential income-distributional effects. They allowed the demand for travel to be price-sensitive and for drivers to differ in the valuations they place on time. Pricing all congested roads optimally would increase total travel costs by 18-42 percent, depending on the elasticity of demand for travel. With unit-elastic demand, pricing would increase travel costs by 31 percent and 5 percent for, respectively, the lowest and highest income groups examined.
