Transport Infrastructure Investment and Demand Uncertainty

Abstract

In transportation planning there can be long lead times to adapt capacity. This paper addresses two questions. First, in a one mode world (say rail or road), what is the optimal capacity choice when faced with uncertain demand, long lead times and congestion. Using a simple analytical model it is shown that when demand is inelastic, it is socially optimal to invest more than if only the expected level of demand is taken into account. In this case it may be bene…cial to overinvest in capacity because congestion costs are a convex function of relative use. This result holds with or without optimal tolling. The second question deals with two competing modes and where only one mode has long lead times for capacity while the other has ‡exible capacity. This is typical for the competition between High Speed Rail and air for the medium distance trips (500 to 1000 km), or for the competition between inland waterways and trucks for freight. We …nd that overinvestment is less justi…ed because the substitute mode can more easily absorb the high demand outcomes.

Transport Infrastructure Investment: A Comparative Analysis between China, Russia and India

“…Since major investments are under political control, the author has attempted to make decision support model to decide on investment decision rather than traditional cost benefit analysis. Stef and Saskia attempted to analyse transport infrastructure investment decisions when there is demand uncertainty [5]. Merits and demerits of overinvestments are brought out in couple of models of demand uncertainty.…”

Expanding airport capacity of cities under uncertainty: Strategies to mitigate congestion

“…Only few studies have modelled the impact of demand uncertainty on airport capacity decisions and investment, using a simple distribution of an uncertain parameter, like the uniform distribution. Moreover, existing literature on transport infrastructure capacity decisions under demand uncertainty in general, such as Proost and Van der Loo (2010), cannot be applied directly to airports due to their specific characteristics, e.g. two different sources of income: aeronautical and non-aeronautical revenues.…”