Transportation Planning

and
Economics
DEPARTMENT
OF
ROAD CONSTRUCTION TECHNOLOGY

Natnael Melsew
Course No -RCT 304

July 1, 2021
Transportation Planning and Economics

Chapter One

Introduction (Overview of Transportation Planning)

1.1. History of Transportation

Human’s first means of transport was walking and swimming. The domestication of
animals introduces a new way to lay the burden of transport on more powerful
creatures, allowing heavier loads to be hauled, or humans to ride the animals for higher
speed and duration. Inventions such as the wheel and sled helped make animal transport
more efficient through the introduction of vehicles. Also, water transport, including
rowed and sailed vessels, dates back to time immemorial, and was the only efficient way
to transport large quantities or over large distances prior to the Industrial Revolution.

The first forms of road transport were horses, oxen or even humans carrying goods
over dirt tracks that often-followed game trails. Paved roads were first built by the
Roman Empire, to allow armies to travel quickly; they built deep roadbeds of crushed
stone as an underlying layer to ensure that they kept dry, as the water would flow out
from the crushed stone, instead of becoming mud in clay soils. The first water craft
were canoes cut out from tree trunks. Early water transport was accomplished with
ships that were either rowed or used the wind for propulsion, or a combination of the
two. Until the Industrial Revolution, transport remained slow and costly, and
production and consumption were located as close to each other as feasible.

The British Industrial Revolution in the 19th century saw a number of inventions
fundamentally change transport. The invention of the steam engine, closely followed
by its application in rail transport, made land transport independent of human or animal
muscles. Both speed and capacity increased rapidly, allowing specialization through
manufacturing being located independent of natural resources. The 19th century also
saw the development of the steam ship that sped up global transport.

1
Natnael Melsew
Transportation Planning and Economics

The development of the combustion engine and the automobile at the turn into the
20th century, road transport became more viable, allowing the introduction of
mechanical private transport. The first highways were constructed during the 19th
century with macadam. Later, tarmac and concrete became the dominant paving
material. In 1903, the first controllable airplane was invented, and after World War I, it
became a fast way to transport people and express goods over long distances.

After World War II, the automobile and airlines took higher shares of transport,
reducing rail and water to freight and short-haul passenger. Spaceflight was launched in
the 1950s, with rapid growth until the 1970s, when interest dwindled. In the 1950s, the
introduction of containerization gave massive efficiency gains in freight transport,
permitting globalization. International air travel became must more accessible in the
1960s, with the commercialization of the jet engine. Along with the growth in
automobiles and motorways, this introduced a decline for rail and water transport. After
the introduction of the Shinkansen in 1964, high-speed rail in Asia and Europe started
taking passengers on long-haul routes from airlines.

1.2. Introduction to Transportation Systems

Transport or transportation is the movement of people and goods from one location
to another. Transportation engineering is the application of technology and scientific
principles to the planning, functional design, operation, and management of facilities
for any mode of transportation in order to provide for the safe, rapid, comfortable,
convenient, economical, and environmentally compatible movement of people and
goods.

A transportation system is the system of infrastructure that serves to move people and
goods efficiently. The transportation system consists of fixed facilities, flow entities,
and a control component. Transport is performed by various modes, such as air, rail,

2
Natnael Melsew
Transportation Planning and Economics

road, water, cable, pipeline and space. The transport system elements can be physical
elements (infrastructure, vehicles), human resources (operators) and operations.

1.2.1. Importance of Transport

Followings are the points of importance of transport.

a. Makes available raw materials to manufacturers or producers: Transport makes

it possible to carry raw materials from places where they are available, to places
where they can be processed and assembled into finished goods.
b. Makes available goods to customers: Transport makes possible movement of
goods from one place to another with great ease and speed. Thus, consumers
spread in different parts of the country have the benefit of consuming goods
produced at distant places.
c. Enhances standard of living: Easy means of transport facilitates large-scale
production at low costs. It gives consumers the choice to make use of different
quantities of goods at different prices. So, it raises the standard of living of the
people.
d. Helps during emergencies and natural disasters: In times of national crisis, due
to war or internal disturbance, transport helps in quick movement of troops and
the supplies needed in the operation.
e. Helps in creation of employment: Transport provides employment opportunity
to individuals as drivers, conductors, pilots, cabin crew, captain of the ship, etc.
who are directly engaged in transport business. It also provides employment to
people indirectly in the industries producing various means of transport and
other transport equipment. People can also provide repairing and maintenance
services by opening service centers at convenient locations.
f. Helps in labor mobility: Transport helps a lot in providing mobility to workers.
You may be aware that people from our country go to foreign countries to work

3
Natnael Melsew
Transportation Planning and Economics

in different industries and factories. It is not always possible to have workers near
the factory. Most industries have their own transport system to bring the workers
from where they reside to the place of work.
g. Helps in bringing nations together: Transport facilitates movement of people
from one country to another. It helps in exchange of cultures, views and practices
between the people of different countries. This brings about greater
understanding among people and awareness about different countries. Thus, it
helps to promote a feeling of international brotherhood.
1.2.2. Different Modes of transport

A mode of transport is a technological solution that used a fundamentally different

vehicle, infrastructure and operations. The transport of a person or cargo may be by
one or more modes, the latter called intermodal transport. Each mode has its
advantages and disadvantages, and will be chosen for a trip depended on the nature of
the purpose, cargo and destination. While their transport in air and on water has their
own mode, land transport has several modes.

Land (Road) Transport Mode

A road is an identifiable route, way or path between two or more places. Roads are
typically smoothed, paved, or otherwise prepared to allow easy travel; though they need
not be, and historically many roads were simply recognizable routes without any formal
construction or maintenance.

Road transport is a flexible and versatile mode of transport (flexible because it offers
point to point service between any origin-destination; versatile because it can transport
products of varying size and weight). In addition, it provides fast and reliable service

In urban areas, roads may pass through a city or village and be named as streets, serving
a dual function as urban space easement and route. The most common road vehicle is

4
Natnael Melsew
Transportation Planning and Economics

the automobile (urban); a wheeled passenger vehicle that carries its own motor. Other
users of roads include buses, trucks, motorcycles, bicycles and pedestrians.

Automobiles offer high flexibility and with low capacity, but are deemed with high
energy consumption and area use, and they are the main source of noise and air
pollution in cities; buses allow for more efficient travel at the cost of reduced flexibility.
Road transport by truck is often the initial and final stage of freight transport.

Fig: Road transportation system

Advantages of Road transport

i. It is a relatively cheaper mode of transport as compared to other modes.

ii. Perishable goods can be transported at a faster speed by road carriers over a short
distance.
iii. It is a flexible mode of transport as loading and unloading is possible at any
destination. It provides door-to-door service.

5
Natnael Melsew
Transportation Planning and Economics

iv. It helps people to travel and carry goods from one place to another, in places
which are not connected by other means of transport like hilly areas.

Limitations of Road transport

i. Due to limited carrying capacity road transport is not economical for long
distance transportation of goods.
ii. Transportation of heavy goods or goods in bulk by road involves high cost.
iii. It is affected by adverse weather conditions. Floods, rain, landslide, etc.,
sometimes create obstructions to road transport.

Air Transport Mode (Aviation)

The aircraft is the second fastest method of transport, after the rocket. Aviation is able
to quickly transport people and limited amounts of cargo over longer distances, but
incur high costs and energy use; for short distances or in inaccessible places helicopters
can be used.

Figure: Air Transport

Advantages of Air transport

i. It is the fastest mode of transport (in terms of time saving)

ii. It is very useful in transporting goods and passengers to the area, which are not
accessible by any other means.

6
Natnael Melsew
Transportation Planning and Economics

iii. It is the most convenient mode of transport during natural calamities.

iv. It provides vital support to the national security and defense.

Limitations of air transport

i. It is relatively more expensive mode of transport.

ii. It is not suitable for transporting heavy and bulky goods.
iii. It is affected by adverse weather conditions.
iv. It is not suitable for short distance travel.
v. In case of accidents, it results in heavy losses of goods, property and life.

Rail transport

Rail transport is where train runs along a two parallel steel rails, known as a railway or
railroad. They rails are anchored perpendicular to cross ties (or sleepers) of timber,
concrete or steel, to maintain a consistent distance apart, or gauge.

A train consists of one or more connected vehicle that run on the rails. Propulsion is
commonly provided by a locomotive that hauls a series of unpowered cars, which can
carry passengers or freight. The locomotive can be powered by steam, diesel or by
electricity supplied by a trackside system. Railed vehicles move with much less friction
than rubber tires on paved roads, making trains more energy efficient, though not as
efficient as ships.

Figure: Rail Transport

7
Natnael Melsew
Transportation Planning and Economics

Advantages of Rail transport

i. It is a convenient mode of transport for travelling long distances.

ii. It is relatively faster than road transport.
iii. It is suitable for carrying heavy goods in large quantities over long distances.
iv. Its operation is less affected by adverse weathers conditions like rain, floods, fog,

Limitations of Railway transport

i. It is relatively expensive for carrying goods and passengers over short distances.
ii. It is not available in remote parts of the country.
iii. It provides service according to fixed time schedule and is not flexible for loading
or unloading of goods at any place.
iv. It involves heavy losses of life as well as goods in case of accident.

Water Transport Mode

Water transport refers to movement of goods and passengers on waterways (sea, ocean,
lake, canal or river) by using various means like boats, steamers, launches, ships, etc.
With the help of these means goods and passengers are carried to different places, both
within as well as outside the country. Within the country, rivers and canals facilitate the
movement of boats, launches, etc. Since the goods and passengers move inside the
country, this type of transport is called inland water transport. When the different
means of transport are used to carry goods and passengers on the sea route it is termed
as ocean transport.

a. Inland water transport

Inland water transport use boats, launches, barges, streamers, etc., to carry goods and
passengers on river and canal routes. These routes are called inland waterways and are
used in domestic or home trade to carry bulky goods.

b. Ship transport (Ocean transport)

8
Natnael Melsew
Transportation Planning and Economics

Although slow, modern sea transport is a highly effective method of transporting large
quantities of non-perishable goods. Transport by water is significantly less costly than
air transport for trans-continental shipping; short sea shipping and ferries remain viable
in coastal areas.

Fig: Transport by water (Lake Tana)

Advantages of water transport

i. It is a relatively economical mode of transport for bulky and heavy goods.

ii. It is a safe mode of transport with respect to occurrence of accidents.
iii. The cost of maintaining and constructing routes is very low as most of them are
naturally made.
iv. It promotes international trade.

Limitations of water transport

i. The depth and navigability of rivers and canals vary and thus, affect operations
of different transport vessels.
ii. It is a slow-moving mode of transport and therefore not suitable for transport
of perishable goods.

9
Natnael Melsew
Transportation Planning and Economics

iii. It is adversely affected by weather conditions.

iv. Sea transport requires large investment on ships and their maintenance.
c. Pipeline Transport Mode

Pipeline transport sends goods through a pipe, most commonly liquid and gases are
sent, but pneumatic tubes can send solid capsules using compressed air. Water supply
to residential and commercial areas is carried on with the help of pipeline. In addition
any chemically stable liquid or gas can be sent through a pipeline. Short-distance
systems exist for sewage, slurry, water and beer, while long-distance networks are used
for petroleum and natural gas.

Fig: Pipeline for crude oil

d. Cable Transport Mode

Is a broad mode where vehicles are pulled by cables instead of an internal power source.
It is most commonly used at steep gradient. Typical solutions include aerial tramway,
elevators, escalator and ski lifts; some of these are also categorized as conveyor
transport.

10
Natnael Melsew
Transportation Planning and Economics

1.2.3. Physical Elements of Transportation System

I. Infrastructure (Supply)

It is the fixed installations that allow a vehicle to operate. It consists of a way, terminal
and facilities for parking and maintenance. For rail, pipeline, road and cable transport,
the entire way the vehicle travels must be built up. Air and water craft are able to avoid
this, since the airway and seaway do not need to be built up. However, they require
fixed infrastructure at terminals.

Terminals such as airports, ports and stations, are locations were passengers and freight
can be transferred from one mode to another. For passenger transport, terminals are
integrating different modes to allow riders to interchange to take advantage of each
mode's advantages. For instance, airport rail links connect airports to the city centers
and suburbs. The terminals for automobiles are parking lots, while buses and coaches
can operate from simple stops. For freight, terminals act as transshipment points,
though some cargo is transported directly from the point of production to the point of
use.

II. Vehicle (Demand)

A vehicle is any non-living device that is used to move people and goods. Unlike the
infrastructure, the vehicle moves along with the cargo and riders. Vehicles that do not
operate on land are usually called crafts.

III. Users or Operators (Driver)

This mainly involves the basic users and operators and these are

✓ Drivers, Pilots
✓ Passengers
✓ Freight

11
Natnael Melsew
Transportation Planning and Economics

1.3. Transportation Planning Process

1.3.1. Introduction

Transportation planning is a process that develops information to help make decisions

on the future development and management of transportation systems, especially in
urban areas.

The formation of the nation’s transportation system has been evolutionary, not the
result of a grand plan. The system now in place is the product of many individual
decisions to select projects for construction or improvement, such as bridges, highways,
tunnels, harbors, railway stations, and airport runways.

The process for planning transportation systems should be a rational one that serves to
furnish unbiased information about the effects that the proposed transportation project
will have on the affected community and on users. For example, if noise or air pollution
is a concern, the process will examine and estimate how much additional noise or air
pollution will occur if the transportation facility is built. The process must be flexible
enough to be applicable to any transportation project or system, because the kinds of
problems that transportation engineers work on will vary over time. Transport planning
should be based on social needs. Examples of changing societal concerns include energy
conservation, traffic congestion, environmental impacts, safety, security, efficiency,
productivity, and community preservation.

The transportation planning process is not intended to furnish a decision or to give a

single result that must be followed, although it can do so in relatively simple situations.
Rather, the process is intended to provide the appropriate information to those who
will be affected and those responsible for deciding whether the transportation project
should go forward.

12
Natnael Melsew
Transportation Planning and Economics

1.3.2. Basic Elements of Transport Planning

The transportation planning elements basically comprises planning of transport

systems/physical planning and financing.

Planning of Transport Systems/physical planning

✓ The preparation of a structural plan for the area of which the authority
(metropolitan or local/regional) has jurisdiction
✓ The structural plan should contain land use policies and proposals for road and
rail network and to related services; e.g. rail terminals, public transport
interchange facilities, docks and airports

Financing

✓ Transport was traditionally regarded as public goods.

✓ Transport infrastructure cost paid by public authorities
✓ Financial structure is tough depending on the type of infrastructure and the
administrative/political/geographical level in scope

The transportation planning process comprises seven basic elements, which are
interrelated and not necessarily carried out sequentially. The information acquired in
one phase of the process may be helpful in some earlier or later phase, so there is a
continuity of effort that should eventually result in a decision. The elements in the
process are:

1. Situation definition
2. Problem definition
3. Search for solutions
4. Analysis of performance
5. Evaluation of alternatives
6. Choice of project

13
Natnael Melsew
Transportation Planning and Economics

7. Specification and construction

1. Situation Definition

The first step in the planning process is situation definition, which involves all of the
activities required to understand the situation that gave rise to the perceived need for a
transportation improvement. In this phase, the basic factors that created the present
situation are described, and the scope of the system to be studied is delineated. The
present system is analyzed and its characteristics are described. Information about the
surrounding area, its people, and their travel habits may be obtained. Previous reports
and studies that may be relevant to the present situation are reviewed and summarized.

2. Problem Definition

The purpose of this step is to describe the problem in terms of the objectives to be
accomplished by the project and to translate those objectives into criteria that can be
quantified. Objectives are statements of purpose, such as to reduce traffic congestion;
to improve safety; to maximize net highway-user benefits; and to reduce noise. Criteria
are the measures of effectiveness that can be used to quantify the extent to which a
proposed transportation project will achieve the stated objectives. For example, the
objective “to reduce traffic congestion” might use “travel time” as the measure of
effectiveness.

3. Search for Solutions

In this phase of the planning process, consideration is given to a variety of ideas,

designs, locations, and system configurations that might provide solutions to the
problem. This is the brainstorming stage, in which many options may be proposed for
later testing and evaluation. Alternatives can be proposed by any group or organization.

The transportation engineer has a variety of options available in any particular situation,
and any or all may be considered in this idea-generating phase. Among the options that

14
Natnael Melsew
Transportation Planning and Economics

might be used are different types of transportation technology or vehicles, various

system or network arrangements, and different methods of operation. This phase also
includes preliminary feasibility studies, which might narrow the range of choices to
those that appear most promising. Some data gathering, field testing, and cost
estimating may be necessary at this stage to determine the practicality and financial
feasibility of the alternatives being proposed.

4. Analysis of Performance

The purpose of performance analysis is to estimate how each of the proposed

alternatives would perform under present and future conditions. The criteria identified
in the previous steps are calculated for each transportation option. Included in this step
is a determination of the investment cost of building the transportation project, as well
as annual costs for maintenance and operation. The number of persons or vehicles that
will use the system is determined, and these results, expressed in vehicles or
persons/hour, serve as the basis for project design. Other information about the use of
the system (such as trip length, travel by time of day, and vehicle occupancy) are also
determined and used in calculating user benefits for various criteria or measures of
effectiveness. Environmental effects of the transportation project (such as noise and air
pollution levels and acres of land required) are estimated. These nonuser impacts are
calculated in situations where the transportation project could have significant impacts
on the community or as required by law.

5. Evaluation of Alternatives

The purpose of the evaluation phase is to determine how well each alternative will
achieve the objectives of the project as defined by the criteria. The performance data
produced in the analysis phase are used to compute the benefits and costs that will
result if the project is selected. In cases where the results cannot be reduced to a single

15
Natnael Melsew
Transportation Planning and Economics

monetary value, a weighted ranking for each alternative might be produced and
compared with other proposed projects.

If the benefit-cost ratio result is positive, the evaluation of alternative sites requires
additional comparison of factors, both for engineering and economic feasibility and for
environmental impact.

6. Choice of Project

Project selection is made after considering all the factors involved. In a simple situation,
for example, where the project has been authorized and is in the design phase, a single
criterion (such as cost) might be used and the chosen project would be the one with the
lowest cost. With a more complex project, however, many factors have to be
considered, and selection is based on how the results are perceived by those involved
in decision-making. If the project involves the community, it may be necessary to hold
additional public hearings. A bond issue or referendum may be required. It is possible
that none of the alternatives will meet the criteria or standards, and additional
investigations will be necessary.

7. Specification and Construction

Once the transportation project has been selected, the project moves into a detailed
design phase in which each of the components of the facility is specified. For a
transportation facility, this involves its physical location, geometric dimensions, and
structural configuration. Design plans are produced that can be used by contractors to
estimate the cost of building the project. When a construction firm is selected, these
plans will be the basis on which the project will be built.

16
Natnael Melsew
Transportation Planning and Economics

Figure: Basic Elements in the Transportation Planning Process Applied to

Consider the Feasibility of a New Bridge.

17
Natnael Melsew
Transportation Planning and Economics

1.4. Transport Planning Data Collection

Data are an essential input to the effective planning and design of transport systems,
either directly by describing the current state of the system, or indirectly by allowing the
calibration of models which yield insights into the processes at work in the system or
help to predict how the system is likely to perform in the future with and without policy
intervention.

The requirement for information needs to be refined into a precise specification of data
requirements in terms of the variable(s) to be studied and the hypotheses to be tested.
Data is used to elaborate cause-effect relationships to be investigated

1.4.1. Sources of planning data

There are two sources of data for transport planning;

✓ Primary sources (direct surveying data)

✓ Secondary sources (existing data).

The choice of data collection method depends on purpose of data & budget allocated.

a. Secondary sources (existing data)

Once the data requirements have been specified, it is important to consider whether
they can be met by making use of existing data, thereby avoiding the need for a special
survey. So, it is the first step in data collection. The three main sources of data are:

18
Natnael Melsew
Transportation Planning and Economics

19
Natnael Melsew
Transportation Planning and Economics

20
Natnael Melsew
Transportation Planning and Economics

21
Natnael Melsew
Transportation Planning and Economics

E.g., vehicle flow past at toll point

Advantages

✓ Saves lots of time & money

✓ When a survey is likely to cause disruption and annoyance to the travelling
public
✓ It is important for political reasons to be seen to be conducting a survey

Problems/disadvantages

✓ (no) knowledge of how data was collected

✓ Definitions & categories may be different
✓ Different spatial aggregations
✓ Disaggregation and cross classifications may not be available (privacy)
✓ Access to raw data may be difficult/impractical (obsolete media, file
formats, inadequate documentation)
✓ Client may want new data to be collected
b. Primary sources (direct surveying data)

22
Natnael Melsew
Transportation Planning and Economics

Assuming that, after careful consideration of all secondary sources of data, the need for
further data collection is established, the next stage is to produce a detailed specification
of this requirement. The specification must take account of the resources available since
they may seriously constrain what can be achieved in terms of accuracy or coverage.
The primary data can be collected in the following different methods.

✓ Observational surveys
✓ Household self-completion surveys
✓ Telephone interview surveys
✓ Road side interviews/Surveys
✓ Household personal interview surveys
✓ Group discussion surveys (focus group)

Advantages

✓ The data may be accurate

✓ Can achieve up to date (current condition) data

Disadvantages

✓ It is time and money consuming

✓ The quality of data depends on personal
✓ The data may bias to the interest of data collector (specially at interviews)

1.4.2. Types of transport planning data

The types of transport planning data to be collected are:

✓ Vehicular traffic flow data

✓ Public transport user data
✓ Pedestrian volume data
✓ Cyclists and cycle facilities data

23
Natnael Melsew
Transportation Planning and Economics

✓ Spot speed data

✓ Origin-Destination (OD) cordon data
✓ Journey speed, travel time and delay data
✓ Parking use data
✓ Environmental impact data (noise and air pollution)

Reference

1. (Nicholas J. Garber Lester A. Hoel, Traffic and Highway Engineering - 4th Edition)
2. Hid O’Flaherty et al. (2003) Transport planning & Traffic Engineering

Chapter Two

Major Policy and Planning Issues

It is common that any system has its own drawback and especially if it is related to
transportation system, there is a lot of challenges which need to have an up-to-date
policies and planning. Since transportation is one of the largest industries in the world
which mainly used by people’s day to day life, any minor problem in the transportation
system needs a lot of attention. Due to large dependency of people over the transport
system available, the industry plays a massive role on the country’s economy.

Problem which needs a new policy may arise due to different reason and some of them
may be caused due to natural problems, issue related to policies, man-made and all the
problems happened in the transport system should be avoided or reduced through
transport planning and policies. Among different problems rise some of the most
common which affect people way of life massively but can be avoided or reduced to
some acceptable levels are the following

24
Natnael Melsew
Transportation Planning and Economics

✓ Environmental Issue
✓ Traffic Congestion
✓ Road Traffic Accident

2.1. Environmental Issue

Environmental regulations in developed countries have reduced the individual vehicle's

emission. However, this has been offset by an increase in the number of vehicles, and
increased use of each vehicle (an effect known as the Jevons paradox. Some pathways
to reduce the carbon emissions of road vehicles have been considerably studied. Energy
use and emissions vary largely between modes, causing environmentalists to call for a
transition from air and road to rail and human-powered transport, and increase
transport electrification and energy efficiency.

a. Emissions

The transportation sector is a major source of greenhouse gas emissions (GHGs) in the
United States. An estimated 30 percent of national GHGs are directly attributable to
transportation—and in some regions, the proportion is even higher. Transportation
methods are the greatest contributing source of GHGs in the U.S., accounting for 47
percent of the net increase in total U.S. emissions since 1990.

b. Land

Other environmental impacts of transport systems include traffic congestion and

automobile-oriented urban sprawl, which can consume natural habitat and agricultural
lands. By reducing transportation emissions globally, it is predicted that there will be
significant positive effects on Earth's air quality, acid rain, smog and climate change.

c. Health

25
Natnael Melsew
Transportation Planning and Economics

The health impact of transport emissions is also of concern. A recent survey of the
studies on the effect of traffic emissions on pregnancy outcomes has linked exposure
to emissions to adverse effects on gestational duration and possibly also intrauterine
growth.

As listed above direct impacts such as noise pollution and carbon monoxide emissions
create direct and harmful effects on the environment, along with indirect impacts. The
indirect impacts are often of higher consequence which leads to the misconception that
it's the opposite since it is frequently understood that initial effects cause the most
damage. For example, particulates which are the outcome of incomplete combustion
done by an internal combustion engine, are not linked with respiratory and
cardiovascular problems since they contribute to other factors not only to that specific
condition. Even though the environmental impacts are usually listed individually there
are also cumulative impacts. The synergetic consequences of transport activities. They
take into account of the varied effects of direct and indirect impacts on an ecosystem.
Climate change is the sum total impact of several natural and human-made factors. 15%
of global CO2 emissions are attributed to the transport sector.

Since emission varies depending on the mode of transport we are using, we need to
focus as a transport planner what kind of transport mode we need to recommend for
the country to use. Here below let see the emission of each mode of transportation
system in Europe.

26
Natnael Melsew
Transportation Planning and Economics

2.2. Traffic Congestion

2.2.1. Introduction to Traffic Congestion

Before we go to any thing about traffic congestion, we need to answer the following
Question

✓ What is Traffic Congestion?

✓ When does we say there is a Traffic Congestion in a certain region or area?

Traffic Congestion is a condition in transport that is characterized by slower speeds,

longer trip times, and increased vehicular queueing and this situation occurs when a
volume of traffic or modal split generates demand for space greater than the available
street capacity; this point is commonly termed saturation.

Types of Traffic Congestion

Traffic Congestion may happen due to different reason and depending on the cause of
traffic congestion, congestion classified in to two

1. Recurring Traffic Congestion

2. Non-recurring Traffic Congestion

27
Natnael Melsew
Transportation Planning and Economics

1. Recurring Traffic Congestion: - expected to occur at the same time every

weekday as a result of high volumes of commuter traffic traveling on
roadways that are at or near their carrying capacity.
2. Non-recurring Traffic Congestion: - occurs as a result of an unexpected or
non-typical event. Some causes of non-recurring congestion include: vehicular
crashes, vehicle breakdowns, roadway construction, weather, and additional
traffic resulting from special events.

Impact of Traffic Congestion

Traffic congestion has a number of negative effects:

✓ Wasting time of motorists and passengers ("opportunity cost"). As a non-

productive activity for most people, congestion reduces regional economic
health.
✓ Delays, which may result in late arrival for employment, meetings, and
education, resulting in lost business, disciplinary action or other personal losses.
✓ Inability to forecast travel time accurately, leading to drivers allocating more
time to travel "just in case", and less time on productive activities.
✓ Wasted fuel increasing air pollution and carbon dioxide emissions owing to
increased idling, acceleration and braking.
✓ Wear and tear on vehicles as a result of idling in traffic and frequent acceleration
and braking, leading to more frequent repairs and replacements.
✓ Stressed and frustrated motorists, encouraging road rage and reduced health of
motorists
✓ Emergencies: blocked traffic may interfere with the passage of emergency
vehicles traveling to their destinations where they are urgently needed.

28
Natnael Melsew
Transportation Planning and Economics

✓ Spillover effect from congested main arteries to secondary roads and side
streets as alternative routes are attempted ('rat running'), which may affect
neighborhood amenity and real estate prices.
✓ Higher chance of collisions due to tight spacing and constant stopping-and-
going.

2.2.2. Countermeasures to Reduce Traffic Congestion

There is different policy-based approach for the countermeasures of traffic congestion

and the method used from country to country varies according to the policy the
respective country prefers to manage traffic congestion. The policy used to reduce
traffic congestion may be focus on the following approach

1. Road Infrastructure
2. Urban Planning and Design
3. Supply and Demand
4. Traffic Management
5. Other Methods
1. Road Infrastructure
a. Junction improvements

Since Junctions are one of the main location traffic congestion occurrences, the
following are some of the ways which someone can improve the junction.

✓ Grade separation, using bridges (or, less often, tunnels)

✓ Ramp signaling, 'drip-feeding' merging traffic via traffic signals onto a
congested motorway-type roadway
✓ Reducing junctions
b. Reversible lanes

29
Natnael Melsew
Transportation Planning and Economics

Where certain sections of highway operate in the opposite direction on different times
of the day(s) of the week, to match asymmetric demand. These pose a potential for
collisions, if drivers do not notice the change in direction indicators. This may be
controlled by variable-message signs or by movable physical separation.

c. Separate lanes for specific user groups

Usually with the goal of higher people throughput with fewer vehicles

✓ Bus lanes as part of a busway system

✓ Express toll lanes
✓ HOV lanes, for vehicles with at least three (sometimes at least two) riders,
intended to encourage carpooling

Carpooling approach may be used in to two different ways and this are

✓ Slugging, impromptu carpooling at HOV access points, on a hitchhiking or

payment basis
✓ Market-based carpooling with pre-negotiated financial incentives for the
driver

HOV Lanes: - a traffic lane reserved for buses or vehicles with several occupants,
typically marked with large diamond shapes on the road surface.

2. Urban Planning and Design

City planning and urban design practices can have a huge impact on levels of future
traffic congestion, though they are of limited relevance for short-term change.

30
Natnael Melsew
Transportation Planning and Economics

✓ Zoning laws: - that encourage mixed-use development, which reduces

distances between residential, commercial, retail, and recreational destinations
and encourage cycling and walking. Cycling modal share is strongly associated
with the availability of local cycling infrastructure.
✓ Car free cities: - car-light cities, and eco-cities designed to eliminate the need
to travel by car for most inhabitants.
✓ Transit-oriented development: - are residential and commercial areas
designed to maximize access to public transport by providing a transit station
or stop (train station, metro station, tram stop, or bus stop).
✓ Grid plans: - including fused grid road network geometry, rather than tree-
like network topology which branches into cul-de-sacs (which reduce local
traffic, but increase total distances driven and discourage walking by reducing
connectivity). This avoids concentration of traffic on a small number of
arterial roads and allows more trips to be made without a car.
3. Supply and Demand

Congestion can be reduced by either

✓ Increasing road capacity (supply)

✓ Reducing traffic (demand).

Capacity can be increased in a number of ways, but needs to take account of latent
demand otherwise it may be used more strongly than anticipated. Critics of the
approach of adding capacity have compared it to "fighting obesity by letting out your
belt" (inducing demand that did not exist before). For example, when new lanes are
created, households with a second car that used to be parked most of the time may
begin to use this second car for commuting. Reducing road capacity has in turn been
attacked as removing free choice as well as increasing travel costs and times, placing an
especially high burden on the low-income residents who must commute to work.

31
Natnael Melsew
Transportation Planning and Economics

a. Increased supply

Even if increasing road capacity is not advisable and can’t not solution for the long term
here is some of the methods, we can increase road capacity.

i. Adding more capacity at bottlenecks: - this can be achieved by

✓ Adding more lanes at the expense of hard shoulders or safety zones
✓ Removing local obstacles like bridge supports and widening tunnels
ii. Adding more capacity over the whole of a route (generally by adding more lanes)
iii. Creating new routes
b. Reduction of demand

Reduction of demand is one of the most efficient way of reducing traffic congestion
and this approach can be achieved in the following methods

i. Parking restrictions: - making motor vehicle use less attractive by increasing

the monetary and non-monetary costs of parking, introducing greater
competition for limited city or road space. Most transport planning experts
agree that free parking distorts the market in favor of car travel, exacerbating
congestion.
ii. Park and ride: - facilities allowing parking at a distance and allowing
continuation by public transport or ride sharing. Park-and-ride car parks are
commonly found at metro stations, freeway entrances in suburban areas, and
at the edge of smaller cities.
iii. Reduction of road capacity to force traffic onto other travel modes. Methods
include traffic calming and the shared space concept.
iv. Road pricing: - charging money for access onto a road/specific area at
certain times, congestion levels or for certain road users and this can be
achieved through

32
Natnael Melsew
Transportation Planning and Economics

✓ "Cap and trade", in which only limited licensed cars are allowed on
the roads. This guarantees that the number of cars does not exceed
road capacity while avoiding the negative effects of shortages
normally associated with quotas. However, since demand for cars
tends to be inelastic, the result are exorbitant purchase prices for the
licenses, pricing out the lower levels of society, as seen Singapore's
Certificate of Entitlement scheme.
✓ Congestion pricing
v. Managed lanes

This mainly done by managing the available in a systematic manner so that we can
facilitate the traffic flow and this can be done

✓ High-occupancy toll lanes

✓ Reversible lanes
✓ High-occupancy vehicle lanes
✓ Bus lanes
✓ Truck lane restrictions and climbing lanes, to allow faster vehicles to move
unimpeded
✓ Allowing driving on highway shoulders at peak times
vi. Road space rationing

Where regulatory restrictions prevent certain types of vehicles from driving under
certain circumstances or in certain areas.

✓ Number Plate Restrictions: - based on days of the week, as practiced in

several large cities in the world. In effect, such cities are banning a different
part of the automobile fleet from roads each day of the week. Mainly
introduced to combat smog, these measures also reduce congestion. A

33
Natnael Melsew
Transportation Planning and Economics

weakness of this method is that richer drivers can purchase a second or

third car to circumvent the ban.
✓ Permits: - where only certain types of vehicles (such as residents) are
permitted to enter a certain area, and other types (such as through-traffic) are
banned. For example, Mayor of Bahir Dar city banned three-wheeler vehicles
(Bajaj) from entering some part of the road.
vii. Policy approaches

Which usually attempt to provide either strategic alternatives or which encourage

greater usage of existing alternatives through promotion, subsidies or restrictions.

✓ Incentives to use public transport, increasing modal shares: -This can

be achieved through infrastructure investment, subsidies, transport
integration, pricing strategies that decrease the marginal cost/fixed cost
ratios, improved timetabling and greater priority for buses to reduce journey
time e.g., bus lanes or bus rapid transit.
✓ Cycling promotion through legislation: - cycle facilities, subsidies, and
awareness campaigns. The Netherlands has been pursuing cycle friendly
policies for decades, and around a quarter of their commuting is done by
bicycle.
✓ Telecommuting encouraged through legislation and subsidies.
✓ Online shopping promotion: - potentially with automated delivery booths
helping to solve the last mile problem and reduce shopping trips made by car.

4. Traffic Management

Use of so-called intelligent transportation systems, which guide traffic:

34
Natnael Melsew
Transportation Planning and Economics

✓ Traffic reporting, via radio, GPS and mobile apps, to advise road users
✓ Variable message signs installed along the roadway, to advise road users
✓ Navigation systems, possibly linked up to automatic traffic reporting
✓ Traffic counters permanently installed, to provide real-time traffic counts
✓ Automated highway systems, a future idea which could reduce the safe interval
between cars (required for braking in emergencies) and increase highway capacity
by as much as 100% while increasing travel speeds
✓ Parking guidance and information systems providing dynamic advice to
motorists about free parking
5. Other Associated

Different modes of transport require different amounts of road space in order to

manage the traffic congestion they use different methods and these are

✓ School opening times arranged to avoid rush hour traffic

✓ Visual barriers to prevent drivers from slowing down out of curiosity
✓ Speed limit reductions, with lower speeds allowing cars to drive closer
together, this increases the capacity of a road. Note that this measure is only
effective if the interval between cars is reduced, not the distance itself. Low
intervals are generally only safe at low speeds.
✓ Lane splitting/filtering, in which some jurisdictions allow motorcycles,
scooters and bicycles to travel in the space between cars, buses, and trucks.
✓ Reduction of road freight avoiding problems such as double parking with
innovative solutions including cargo bicycles.
✓ Reducing the quantity of cars that are on the road, i.e., through proof-of-
parking requirements, circulation plans, corporate car sharing, bans on on-
street parking or by increasing the costs of car ownership

2.2.3. Congestion Management System

35
Natnael Melsew
Transportation Planning and Economics

Congestion management is the application of strategies to improve transportation

system performance and reliability by reducing the adverse impacts of congestion on
the movement of people and goods.

The transportation planning process in a Transport Management Area (TMA) shall

address congestion management through a process that provides for safe and effective
integrated management and operation of the multimodal transportation system, based
on a cooperatively developed and implemented metropolitan-wide strategy, of new and
existing transportation facilities through the use of travel demand reduction and
operational management strategies. The development of a congestion management
process should result in multimodal system performance measures and strategies that
can be reflected in the metropolitan transportation plan and Transportation
Improvement Program (TIP).

The Congestion Management Process (CMP) is intended to serve as a systematic

process that provides for safe and effective integrated management and operation of
the multimodal transportation system.

The process includes:

✓ Development of congestion management objectives

✓ Define CMP Network
✓ Develop Multimodal Performance Measures
✓ Collect Data/Monitor System Performance
✓ Analyze Congestion Problems and Needs
✓ Identify and Assess Strategies
✓ Program and Implement Strategies
✓ Evaluate Strategy Effectiveness

36
Natnael Melsew
Transportation Planning and Economics

Using the guideline listed above, one can do congestion management and below let see
what all those process account for

1. Development of congestion management objectives

First, it is important to consider,

✓ What is the desired outcome?

✓ What do we want to achieve?

It may not be feasible or desirable to try to eliminate all congestion, and so it is

important to define objectives for congestion management that achieve the desired
outcome. Some Metropolitan Planning Organization (MPOs) also define
congestion management principles, which shape how congestion is addressed from a
policy perspective.

2. Define CMP Network

This action involves answering the question,

✓ What components of the transportation system are the focus?

and involves defining both the geographic scope and system elements (e.g., freeways,
major arterials, transit routes) that will be analyzed in the CMP

3. Develop Multimodal Performance Measures

The CMP should address,

✓ How do we define and measure congestion?

This action involves developing performance measures that will be used to measure
congestion on both a regional and local scale. These performance measures should
relate to, and support, regional objectives. The following categories of strategies, or

37
Natnael Melsew
Transportation Planning and Economics

combinations of strategies, are some examples of what should be appropriately

considered for each area for performance measure:

i. Demand management measures, including growth management and

congestion pricing
ii. Traffic operational improvements
iii. Public transportation improvements
iv. ITS technologies as related to the regional ITS architecture
v. Where necessary, additional system capacity;
4. Collect Data/Monitor System Performance

After performance measures are defined, data should be collected and analyzed to
determine,

✓ How does the transportation system perform?

Data collection may be on-going and involve a wide range of data sources and partners

5. Analyze Congestion Problems and Needs

Using data and analysis techniques, the CMP should address the questions,

✓ What congestion problems are present in the region, or are

anticipated?
✓ What are the sources of unacceptable congestion?
6. Identify and Assess Strategies

Working together with partners, the CMP should address the question,

✓ What strategies are appropriate to mitigate congestion?

This action involves both identifying and assessing potential strategies, and may
include efforts conducted as part of the Metropolitan Transportation Plan (MTP),
corridor studies, or project studies.

38
Natnael Melsew
Transportation Planning and Economics

7. Program and Implement Strategies

This action involves answering the question,

✓ How and when will solutions be implemented?

It typically involves including strategies in the MTP,

✓ Determining funding sources

✓ Prioritizing strategies
✓ Allocating funding in the Transportation Improving Program (TIP)

and ultimately, implementing these strategies.

8. Evaluate Strategy Effectiveness

Finally, efforts should be undertaken to assess

✓ What have we learned about implemented strategies?

This is an essential, required element of the CMP that is often overlooked. The primary
goal of this Action is to ensure that implemented strategies are effective at addressing
congestion as intended, and to make changes based on the findings as necessary. Two
general approaches are used for this type of analysis:

a. System-level performance evaluation: - Regional analysis of historical trends

to identify improvement or degradation in system performance, in relation to
objectives; and
b. Strategy effectiveness evaluation: - Project-level or program-level analysis of
conditions before and after the implementation of a congestion mitigation effort

Generally, the graphic that follows illustrates these actions, and highlights the cyclical
nature of the process. While these actions are presented in a linear form, it is important
to recognize that within the cycles of transportation planning, some of these actions

39
Natnael Melsew
Transportation Planning and Economics

may be revisited, or occur on an on-going basis, while others may not. For instance, in
updating the Metropolitan Transportation Plan (MTP), the Metropolitan Planning
Organization may revisit or develop new congestion management objectives, which
may lead to development of new performance measures; but the Metropolitan Planning
Organization might not redefine other aspects of its Congestion Management Process
at the same time. The Congestion Management Process network might not be updated
with each update of the Metropolitan Transportation Plan, and data collection activities
may occur on an annual basis or some other cycle. Consequently, the Process Model is
not intended to serve as a step-by-step approach, but is intended to convey the general
flow of the approach, building on regional objectives to implementation of strategies,
and evaluation of their effectiveness.

Figure: Elements of the Congestion Management Process

2.3. Road Safety and Security

As the number of motor vehicles and vehicle-miles of travel increases throughout the
world, the exposure of the population to traffic crashes also increases. Traffic and

40
Natnael Melsew
Transportation Planning and Economics

highway engineers are continually engaged in working to ensure that the street and
highway system is designed and operated such that highway crash rates can be reduced.
They also work with law-enforcement officials and educators in a team effort to ensure
that traffic laws, such as those regarding

✓ Speed limits
✓ Drinking and Driving

are enforced, and that motorists are educated about their responsibility to drive
defensively and to understand and obey traffic regulations.

In managing highway safety, there are five major safety programs that are addressed by
concerned bodies in developing a safety management program and these are

1. Coordinating and integrating broad-based safety programs, such as motor

carrier-, corridor-, and community-based safety activities, into a comprehensive
management approach for highway safety.
2. Identifying and investigating hazardous highway safety problems and roadway
locations and features, including railroad–highway grade crossings, and
establishing countermeasures and priorities to correct identified or potential
hazards.
3. Ensuring early consideration of safety in all highway construction programs and
projects.
4. Identifying safety needs of special user groups (such as older drivers, pedestrians,
bicyclists, motorcyclists, commercial motor carriers, and hazardous materials
carriers) in the planning, design, construction, and operation of the highway
system.
5. Routinely maintaining and upgrading safety hardware (including highway–rail
crossing warning devices), highway elements, and operational feature
2.3.1. Issues Involved in Transportation Safety

41
Natnael Melsew
Transportation Planning and Economics

Several issues are involved in transportation safety. These include

a. Whether accidents should be referred to as crashes

b. The causes of transportation crashes
c. The factors involved in transportation crashes.
[Link]. Crashes or Accidents

“Accident” is the commonly accepted word for an occurrence involving one or more
transportation vehicles in a collision that results in property damages, injury, or death.
The term “accident” implies a random event that occurs for no apparent reason other
than “it just happened.” Have you ever been in a situation where something happened
that was unintended? Your immediate reaction might have been “sorry, it was just an
accident.”

In recent years, the National Highway Traffic Safety Administration has suggested
replacing the word “accident” with the word “crash” because “crash” implies

that the collision could have been prevented or its effect minimized by modifying

✓ Driver behavior
✓ Vehicle design (called “crashworthiness”)
✓ Roadway geometry, or the traveling environment.

The word “crash” is not universally-accepted terminology for all transportation modes
and is most common in the context of highway and traffic incidents.

[Link]. What Causes Transportation Crashes?

The occurrence of a transportation crash presents a challenge to safety investigators. In

every instance, the question arises, “What sequence of events or circumstances

42
Natnael Melsew
Transportation Planning and Economics

contributed to the incident that resulted in injury, loss of lives, or property damage?”
In some cases, the answer may be a simple one. For example, the cause of a single car
crash may be that the driver fell asleep at the wheel, crossed the highway shoulder, and
crashed into a tree. In other cases, the answer may be complex, involving many factors
that, acting together, caused the crash to occur.

It is possible to construct a general list of the categories of circumstances that could

influence the occurrence of transportation crashes. If the factors that have contributed
to crash events are identified, it is then possible to modify and improve the
transportation system. In the future, with the reduction or elimination of the crash
causing factor, a safer transportation system is likely to result.

[Link]. Factors Involved in Transportation Crashes

While the causes of crashes are usually complex and involve several factors, they can be
considered in four separate categories:

✓ Driver Action/Behavior
✓ Vehicle Condition
✓ Roadway Condition
✓ Environmental Condition

and these factors will be reviewed in the following section.

a. Driver or Operator Action

The major contributing cause of many crash situations is the performance of the driver
of one or both (in multiple vehicle crashes) of the vehicles involved. Driver error can
occur in many ways, such as inattention to the roadway and surrounding traffic, failure
to yield the right of way, and/or traffic laws. These “failures” can occur as a result of

✓ Unfamiliarity with roadway conditions,

43
Natnael Melsew
Transportation Planning and Economics

✓ Traveling at high speeds

✓ Drowsiness
✓ Drinking and driving
✓ Using a cell phone or other distractions while driving.
b. The Vehicle Condition

The mechanical condition of a vehicle can be the cause of transportation crashes. Some
of the reasons might be

✓ Faulty brakes in heavy trucks have caused crashes

✓ Failure of the electrical system,
✓ Having worn tires
✓ Location of the vehicle’s center of gravity.
c. The Roadway Condition

The condition and quality of the roadway, which includes the

✓ Pavement
✓ Shoulders
✓ Sight distance provision
✓ Intersections
✓ The traffic control system

can be a factor in a crash. Highways must be designed to provide adequate sight

distance at the design speed or motorists will be unable to take remedial action to avoid
a crash. Traffic signals must provide adequate decision sight distance when the signal
goes from green to red. Railroad grade crossings must be designed to operate safely and
thus minimize crashes between highway traffic and rail cars. Highway curves must be
carefully designed to accommodate vehicles traveling at or below the design speed of
the road.

44
Natnael Melsew
Transportation Planning and Economics

d. The Environment

The physical and climatic environment surrounding a transportation vehicle can also be
a factor in the occurrence of transportation crashes with the most common being
weather. All transportation systems function at their best when the weather is sunny
and mild and the skies are clear. Weather on roads can contribute to highway crashes.
For example, wet pavement reduces stopping friction and can cause vehicles to
hydroplane. Many severe crashes have been caused by fog because vehicles traveling at
high speeds are unable to see other vehicles ahead that may have stopped or slowed
down, creating a multivehicle pile-up. Geography is another environmental cause of
transportation crashes. Mountain ranges have been the site of air crashes. Flooded river
plains, swollen rivers, and mud slides on the pavement have caused railroad and
highway crashes.

2.3.2. Strategic Highway Safety Plan

Formulating and implementing policies and safety plans is necessary for improving road
safety. Policies will have no effect on road safety unless they are implemented. This unit
examines the importance of road safety policy, and then describes the basic steps and
issues to consider in formulating and implementing road safety policy.

Importance of Policy in Preventing Road Traffic Injuries

The term policy can be interpreted in a variety of ways. Here we consider a national
policy on road safety to be a written document that provides the basis for action to be
taken jointly by the government and its nongovernmental partners. A policy is necessary
to:

✓ Raise awareness and create mutual understanding about a situation

✓ Articulate ethical and other principles that should justify and guide action
✓ Generate a consensus vision on the actions to be undertaken

45
Natnael Melsew
Transportation Planning and Economics

✓ Provide a framework for action

✓ Define institutional responsibilities and mechanisms of coordination
✓ Secure or raise political commitment
✓ Engage a variety of partners
✓ Identify measures which are likely to produce good results
✓ Monitor progress and effectiveness of strategies.

The planning component of the HSIP consists of four processes. These are

i. Collecting and maintaining data

ii. Identifying hazardous locations and elements
iii. Conducting engineering studies
iv. Establishing project priorities.
[Link]. Collecting and Maintaining Data

Crash data may be collected by the local traffic police and other concerned bodies form
used for recording/collecting the traffic crash data may be varied from region to region
or city to city but generally the type of data collected from each crash recording should
be almost similar and it should at least include the following information. The
information will include:

✓ Location,
✓ Time of occurrence
✓ Roadway and environmental conditions
✓ Types and number of vehicles involved,
✓ A sketch showing the original paths of the maneuver or maneuvers of
the vehicles involved
✓ The severity (fatal, injury, or property damage only)
✓ Collision diagram

46
Natnael Melsew
Transportation Planning and Economics

Analysis of Crash Data

The reasons for analyzing traffic data are to:

✓ Identify patterns that may exist

✓ Determine probable causes with respect to drivers, highways, and
vehicles
✓ Develop countermeasures that will reduce the rate and severity of future
crashes.

To facilitate the comparison of results obtained before and after the application of a
safety countermeasure at a particular location, or the comparison of safety conditions
among different locations, one or more of the following procedures have been used.

a. Direct comparison of number of crashes

b. Direct comparison of crash rates
c. Crash patterns
d. Statistical comparison

In this course we will try to only the first two methods of crash data analysis. But the
later two will need some advanced statistical knowledge which will not be given at this
level. If you need further study on the latter two methods, you can see the reference
book listed below

(Nicholas J. Garber Lester A. Hoel, Traffic and Highway Engineering - 4th Edition, Page 162-177)

a. Direct Comparison of Number of Crashes

This involves the computation of the number of crashes for the same duration before
and after the implementation of the safety countermeasure or the computation of the
number of crashes for the same time period at different locations. The comparison may
be done by computing the percentage change in the number of crashes from which

47
Natnael Melsew
Transportation Planning and Economics

some inferences can be made. This procedure is biased to high volume sites, and has a
major flaw as it does not consider several factors (exposure), such as the volume at the
location or locations. This type of analysis may therefore lead to erroneous conclusions.

b. Direct Comparison of Crash Rates

These rates are determined on the basis of exposure data, such as traffic volume and
the length of road section being considered. Commonly used rates are rate per million
of entering vehicles (RMEVs) and rate per 100 million vehicle-miles (RMVM).

The rate per million of entering vehicles (RMEVs) is the number of crashes per
million vehicles entering the study location during the study period. It is expressed as

𝐴 × 1,000,000
𝑅𝑀𝐸𝑉𝑠 =
𝑉

Where: -

RMEVs = rate per million of entering vehicle

A = number of crashes, total or by type occurring in a single year at the
location
V = average daily traffic (ADT) × 365

Example1: - The number of all crashes recorded at an intersection in a year was 23,
and the average 24-hr volume entering from all approaches was 6500. Determine the
crash rate per million entering vehicles (RMEV).

Solution:
𝐴 × 1,000,000
𝑅𝑀𝐸𝑉𝑠 =
𝑉
23 × 1,000,000
𝑅𝑀𝐸𝑉𝑠 = = 9.69 𝑐𝑟𝑎𝑠ℎ𝑒𝑠/𝑚𝑒𝑣
6500 ∗ 365

48
Natnael Melsew
Transportation Planning and Economics

In addition to rate per million entering vehicle we can also use rate per 100 million
vehicle miles (RMVM) and it is obtained from the expression.

𝐴 × 100,000,000
𝑅𝑀𝑉𝑀 =
𝑉𝑀𝑇

Where: -

RMVM = rate per 100 million of vehicle miles

A = number of crashes, total or by type at the study location, during a given
period
VMT = vehicle miles of travel during the given period
= ADT × (no of days in study period) × (length of road)

This rate is often used as a measure of crash rates on a stretch of highway with similar
traffic and geometric characteristics.

Example 2: - It is observed that 40 traffic crashes occurred on a 17.5-mile-long section

of highway in one year. The ADT on the section was 5000 vehicles.

a. Determine the rate of total crashes per 100 million vehicle-miles

b. Determine the rate of fatal crashes per 100 million vehicle-miles, if 5% of the

crashes involved fatalities

Solution:

For a)

𝐴 × 100,000,000
𝑅𝑀𝑉𝑀 =
𝑉𝑀𝑇
40 × 100,000,000
𝑅𝑀𝑉𝑀 = = 125.24 𝑐𝑟𝑎𝑠ℎ/100𝑚𝑣𝑚
5000 × 365 × 17.5

For b)

49
Natnael Melsew
Transportation Planning and Economics

𝑅𝑀𝑉𝑀𝐹 = 125.24 × 0.05 = 6.26 𝑐𝑟𝑎𝑠ℎ/100𝑚𝑣𝑚

Note that any crash rate may be given in terms of the total number of crashes occurring
or in terms of a specific type of crash. Therefore, it is important that the basis on which
crash rates are determined is clearly stated. Comparisons between two locations can be
made only using results obtained from an analysis based on similar exposure data.

Although the use of crash rates considers the effect of an exposure, it does not take
into consideration other factors, usually referred to as confounding factors, that may
affect the occurrence of crashes. Research has also shown that it tends to be biased
toward low volume sites. Care should therefore be taken in making conclusions by
simply comparing crash rates.

[Link]. Identifying and Prioritizing Hazardous Locations and Elements

Hazardous locations are sites where crash frequencies, calculated on the basis of the
same exposure data, are higher than the expected value for other similar locations or
conditions. Several methods have been used to identify and prioritize hazardous
locations. Any of the crash rates or summaries described earlier may be used to identify
hazardous locations. A common method of analysis involves the determination of crash
rates based on the same exposure data for the study site with apparent high rates and
several other sites with similar traffic and geometric characteristics. Among a number
of hazardous locations we have, the one with the highest crash rate assigned the highest
priority.

A technique that is used to identify possible hazardous locations are

✓ Critical CRF method

✓ Index for potential for safety improvement (PSI)
[Link]. Conducting Engineering Studies

50
Natnael Melsew
Transportation Planning and Economics

After a particular location has been identified as hazardous, a detailed engineering study
is performed to identify the safety problem. Once the safety problem is identified,
suitable safety-related countermeasures can be developed.

Determining Possible Causes of Crashes

Having identified the hazardous locations and the crash pattern, the next stage in the
data analysis is to determine possible causes. The types of crashes identified are matched
with a list of possible causes from which several probable causes are identified. The
environmental conditions existing at the time may also help in identifying possible
causes. To go through cause of crashes you see the Reference book listed below.

(Nicholas J. Garber Lester A. Hoel, Traffic and Highway Engineering – 4th Edition, Page 182)

The first task in this subprocess is an in-depth study of the crash data obtained at the
hazardous site. The results of the analysis will indicate the type or types of crashes that
predominate or that have abnormal frequency rates. Possible causes can then be
identified from Table 5.6. However, the list of possible causes obtained at this stage is
preliminary, and personal knowledge of the site, field conditions, and police accident
reports should all be used to improve this list.

The next task is to conduct a field review of the study site. This review involves an
inspection of the physical condition and an observation of traffic operations at the site.
Information obtained from this field review is then used to confirm the existence of
physical deficiencies, based on the pattern of crashes, and to refine the list of possible
causes. The refined list is used to determine what data will be required to identify the
safety deficiencies at the study site. After identifying the data needs, existing records
then will be reviewed to determine whether the required data are available. Care must
be taken to ensure that any existing data are current and are related to the time for
which the study is being conducted.

51
Natnael Melsew
Transportation Planning and Economics

The results of these studies are used to determine traffic characteristics of the study site
from which specific safety deficiencies at the study site are determined. For example, a
sight-distance study at an intersection may reveal inadequate sight distance at that
intersection, which results in an abnormal rate of left-turn head-on collisions. Similarly,
a volume study, which includes turning movements at an intersection with no separate
left-turn phase, may indicate a high volume of left-turn vehicles, which suggests that a
deficiency is the absence of a special left-turn phase.

Having identified the safety deficiencies at the study site, the next task is to develop
alternative countermeasures to alleviate the identified safety deficiencies. A partial list
of general countermeasures for different types of possible causes is shown in Table 5.8.

Note: For table 5.6, 5.7 and 5.8 please refer the refence book

(Nicholas J. Garber Lester A. Hoel, Traffic and Highway Engineering – 4th Edition, Page 182 – 187)

[Link]. Establishing Project Priorities

The purpose of this task is to determine the economic feasibility of each set of
countermeasures and to determine the best alternative among feasible mutually
exclusive countermeasures. The benefit may be obtained in monetary terms by
multiplying the expected number of prevented crashes by an assigned cost for each type
of crash severity.

Implementation and Evaluation

Implementation involves

✓ Scheduling selected projects

✓ Implementing the highway safety improvements selected.

The evaluation component involves determination of the effect of the highway safety
improvement. This involves the collection of data for a period after the implementation

52
Natnael Melsew
Transportation Planning and Economics

of the improvement to determine whether anticipated benefits are actually accrued. This
task is important, since the information obtained will provide valuable data for other
similar projects.

References

1. Congestion Management Process Guidebook, US Department of Transportation

2. Nicholas J. Garber Lester A. Hoel, Traffic and Highway Engineering – 4th Edition

53
Natnael Melsew
Transportation Planning and Economics

Chapter Three

Introduction to Transportation Economics

3.1. Introduction to Economics

Economics is a social science concerned with the production, distribution, and

consumption of goods and services. It studies how individuals, businesses,
governments, and nations make choices about how to allocate resources. Economics
focuses on the actions of human beings, based on assumptions that humans act with
rational behavior, seeking the most optimal level of benefit or utility. The building
blocks of economics are the studies of labor and trade. Since there are many possible
applications of human labor and many different ways to acquire resources, it is the task
of economics to determine which methods yield the best results.

Economics can generally be broken down into

✓ Macroeconomics: - which concentrates on the behavior of the

economy as a whole
✓ Microeconomics: - which focuses on individual people and businesses
(behavior of individual consumers and producers)

Macroeconomics studies an overall economy on both a national and international level,

using highly aggregated economic data and variables to model the economy. Its focus
can include a distinct geographical region, a country, a continent, or even the whole
world. Its primary areas of study are recurrent economic cycles and broad economic
growth and development. Topics studied include foreign trade, government fiscal and
monetary policy, unemployment rates, the level of inflation and interest rates, the
growth of total production output as reflected by changes in the Gross Domestic
Product (GDP), and business cycles that result in expansions, booms, recessions, and
depressions.

54
Natnael Melsew
Transportation Planning and Economics

Micro- and macroeconomics are intertwined. Aggregate macroeconomic phenomena

are obviously and literally just the sum total of microeconomic phenomena. However,
these two branches of economics use very different theories, models, and research
methods, which sometimes appear to conflict with each other. Integrating the
microeconomics foundations into macroeconomic theory and research is a major area
of study in itself for many economists.

Economics is especially concerned with efficiency in production and exchange and uses
models and assumptions to understand how to create incentives and policies that will
maximize efficiency.

Economic Indicators

An economic indicator is a piece of economic data, usually of macroeconomic scale,

that is used by analysts to interpret current or future investment possibilities. These
indicators also help to judge the overall health of an economy.

Economic indicators can be anything the investor chooses, but specific pieces of data
released by the government and non-profit organizations have become widely followed.
Such indicators include but aren't limited to:

✓ Gross Domestic Product (GDP)

✓ Consumer Price Index (CPI)
✓ Retail Sales
✓ Employment Data (Unemployment Figure)
✓ Price of Crude Oil

Indicators can be leading, which tend to precede trends,

a. Coincident: - that which is happening now

b. Lagging: - which confirm trends

55
Natnael Melsew
Transportation Planning and Economics

a. Coincident Indicators

Which include such things as GDP, employment levels, and retail sales, are seen with
the occurrence of specific economic activities. This class of metrics shows the activity
of a particular area or region. Many policymakers and economists follow this real-time
data.

b. Lagging Indicators

Such as gross national product (GNP), Consumer Price Index (CPI), unemployment
rates, and interest rates, are only seen after a specific economic activity occurs. As the
name implies, these data sets show information after the event has happened. This
trailing indicator is a technical indicator that comes after large economic shifts.

Below are some of the major economic reports and indicators used for fundamental
analysis.

i. Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) is considered by many to be the broadest measure
of a country's economic performance. It represents the total market value of all finished
goods and services produced in a country in a given year or another period. Many
investors, analysts, and traders don't actually focus on the final annual GDP report, but
rather on the two reports issued a few months before: the advance GDP report and the
preliminary report. This is because the final GDP figure is frequently considered a
lagging indicator, meaning it can confirm a trend but it can't predict a trend. In
comparison to the stock market, the GDP report is somewhat similar to the income
statement a public company reports at year-end.

56
Natnael Melsew
Transportation Planning and Economics

ii. Consumer Price Index (CPI)

The Consumer Price Index (CPI), also issued by the BLS, measures the level of retail
price changes (the costs that consumers pay) and is the benchmark for measuring
inflation. Using a basket that is representative of the goods and services in the economy,
the CPI compares the price changes month after month and year after year.7 This report
is one of the more important economic indicators available, and its release can increase
volatility in equity, fixed income, and forex markets. Greater-than-expected price
increases are considered a sign of inflation, which will likely cause the underlying
currency to depreciate.

iii. Retail Sales

The retail sales report is very closely watched and measures the total receipts, or dollar
value, of all merchandise sold in stores. The report estimates the total merchandise sold
by taking sample data from retailers across the country—a figure that serves as a proxy
of consumer spending levels. Because consumer spending represents more than two-
thirds of GDP, this report is very useful to gauge the economy's general direction. Also,
because the report's data is based on the previous month sales, it is a timely indicator.
The content in the retail sales report can cause above normal volatility in the market,
and information in the report can also be used to gauge inflationary pressures that
affect.

iv. Industrial Production

The industrial production report, released monthly by the Federal Reserve, reports on
the changes in the.

57
Natnael Melsew
Transportation Planning and Economics

v. Employment Data (Unemployment Figure)

The Bureau of Labor Statistics (BLS) releases employment data in a report called the
non-farm payrolls, on the first Friday of each month.6 Generally, sharp increases in
employment indicate prosperous economic growth. Likewise, potential contractions
may be imminent if significant decreases occur. While these are general trends, it is
important to consider the current position of the economy. For example, strong
employment data could cause a currency to appreciate if the country has recently been
through economic troubles because the growth could be a sign of economic health and
recovery. Conversely, in an overheated economy, high employment can also lead to
inflation, which in this situation could move the currency downward.

Types of Economic System

There are different types of economic system and these are

i. Capitalism
ii. Socialism
iii. Communism

While having a basic understanding of economic theory isn't perceived as being as

important as balancing a household budget or learning how to drive a car, the forces
that underpin the study of economics impact every moment of our lives. At the most
basic level, economics attempts to explain how and why we make the purchasing
choices we do. There are four key economic concepts which can help explain many
decisions that humans make.

✓ Scarcity
✓ Supply and demand
✓ Costs and benefits
✓ Incentives

58
Natnael Melsew
Transportation Planning and Economics

( [Link] )

3.2. History Definition and Scope of Transportation Economics

3.2.1. Historical Context

Up to the 18th century, the most important commercial cities in the world were
maritime cities due to the relatively low costs of water transportation. However, the
invention of the steam engine in the eighteenth century marked a watershed in the
history of transportation by allowing for greater economy in transportation of goods
and passengers, and therefore shifted the balance in favor of land transportation. After
World War II, advancements in road construction technology and mass production of
the automobile led to increasing use of highways for land transportation. Currently,
highway transportation accounts for approximately 30% of all ton miles (representing
90% of all overall value) of freight transportation, and over 95% of passenger
transportation in terms of person-miles. Such modal shifts that have been observed
over the years arose from improvements in transportation technology, and resulted in
the reductions in transportation costs and time.

Reductions in transportation cost and time have in turn led to increased availability of
goods, lower prices of goods and services, price stabilization and equalization, changes
in land values, urbanization, and equity.

In recent years, certain developments have greatly influenced the economics of the
various modes of transportation. These include the deregulation of the transportation
industry (1977-1980), which enabled shippers and carriers to negotiate the best mutually
beneficial rates and service packages, and Just-in-Time logistics systems, which reduced
the need for inventory and therefore lowered the holding costs of goods. The other
developments are increasing demands of customers for improved quality of service
(which includes ensuring that a product is transported to a destination when it is needed,
in the right quantities and in undamaged condition), and globalization of business, as

59
Natnael Melsew
Transportation Planning and Economics

companies are increasingly seeking to purchase their production inputs or market their
products regardless of global location.

3.2.2. Definition

Since economics has been defined as “the study of how people and society end up
choosing, with or without the use of money, to employ scarce productive resources that
could have alternative uses to produce various commodities and distribute them for
consumption, now and in the future, among various persons and groups in society. It
analyzes the costs and benefits of improving patterns of resource allocation”.

Transportation refers to the movement of persons, goods and services from one point
to another, with the aid of fixed facilities and/or vehicles such as bridges, highway
pavements, pipelines, aircraft, etc. The economist’s viewpoint, may therefore be
considered in terms of either supply (the available quantity and quality of the fixed
facilities and vehicles) or demand (the “desire” of persons or goods to be transported
and ability to pay for it). Transportation economics can be described as the study of
how scarce productive resources are used to produce and distribute various
transportation services for consumption by the society.

3.2.3. Scope of Transportation Economics

The study of economics is divided into macro-economics and micro-economics. Micro

economics is associated with the wealth of society on a regional scale, and deals with
the behavior of aggregate concepts. On the other hand, micro-economics involves the
behavior of relatively smaller entities such as firms and individuals. Transportation
economics, while considered a branch of applied micro-economics, is associated with

certain unique issues such as:

✓ The demand for transportation is not direct, but is derived

60
Natnael Melsew
Transportation Planning and Economics

✓ The consumption of each transportation facility (i.e., each trip) is unique

in time and space
✓ Technological differences among different modes and economies of scale
✓ Governmental interventionist policies and regulations in transportation

In general transportation economics specifically addresses

✓ Demand of transportation services

✓ Supply of transportation facilities
✓ Elasticities of demand and supply
✓ Price mechanisms
✓ Transportation cost analysis
3.3. Importance of Transportation Economics

Constituting the largest government-owned asset in the United States, transportation

facilities such highways and bridges are associated with annual investment levels
exceeding 1 trillion dollars (FHWA, 1996; AASHTO, 1996). Such investments are in
the form of new construction, rehabilitation and maintenance, and operations.
Transportation agencies at all levels of government have the responsibility of effectively
managing the performance and usage of their physical assets so that such assets can be
kept in acceptable condition to provide desirable levels of service with available
resources. Given the ever increasing commercial and personal travel demands vis-à-vis
limited resources, this task is more critical than ever before. Managers of transportation
facilities are now being perceived as stewards of a vast public asset, and are expected to
provide operational and financial accountability of any investment decision. The
management of transportation assets, defined as a systematic process of maintaining,
upgrading, and operating physical assets cost-effectively (FHWA, 1999) that combines
engineering principles with sound business practices and economic theory, has been
touted as a means of achieving more organized, logical and integrated approaches to

61
Natnael Melsew
Transportation Planning and Economics

decision making involving transportation systems. The recent issuance of

Governmental Accounting Standards Board Statement 34 that established new financial
reporting requirements for state and local governments to ensure safekeeping and
appropriate use of public resources and operational accountability brought a new
dimension to the importance of economics in transportation. Such trends, coupled with
increasing public expectation and extraordinary advances in technology, have ushered
in a new era of the economics of transportation systems. Furthermore, such new
perspectives in the transportation environment underscore the need for transportation
policy makers, engineers, managers and administrators to be well trained in formal
economics and finance.

3.4. Transportation Demand and Supply

3.4.1. Analysis of Transportation Demand

The demand of goods and services in general, depends largely on

✓ Consumers’ income
✓ The price of the particular good or service relative to other prices

For example, the demand for travel depends on the income of the traveler. The choice
of the travel mode depends on several factors such as

✓ The purpose of the trip

✓ The distance traveled
✓ The income of the traveler

A demand function of a particular product represents the willingness of consumers to

purchase the product at alternative prices. A demand function shows for example a
number of passengers willing to use a commuter train at different price levels between
a pair of origins and destinations, for a specific trip, during a given trip.

For example, the price for the trip could be out of pocket costs (the train fare) such as;

62
Natnael Melsew
Transportation Planning and Economics

✓ Travel time including access, waiting, and in vehicle time

✓ Comfort
✓ Safety
✓ Convenience
✓ Reliability

and several other tangible and intangible factors. Most of the components of the
perceived price for travel can be measured and expressed in monetary units. The
synthetic “price” in sometimes called a generalized price.

A demand function for travel is shown in figure below for a given pair of origin and
destination points, at a specific time of a day and for a particular purpose. Such as a
demand function is useful for predicting travel over a wide range of conditions. This
demand function assumes a particular for level and distribution of

✓ Income
✓ Population
✓ Socioeconomic characteristics

Note that is an aggregate demand curve, representing the volume of trips demanded at
different prices by a group of travelers. Functionally, if we consider a linear demand
function

𝑞 = 𝛼 − 𝛽𝑝

Where q is the quantity of trips demanded, p is the price and 𝛼 and 𝛽 are constant
demand parameters. The demand function is drawn with the negative slope expressing
at a familiar situation where a decrease in perceived price usually results in an
increase in travel, although this is not always true.

The below figure represents the amount of travel people are willing to make by transit
at various transit fare (price) levels. Transportation demand functions, either in the form
63
Natnael Melsew
Transportation Planning and Economics

of a graph or an equation, are useful in transportation planning because they enable the
determination of expected demand at any price. A specific demand curve represents the
demand-price relationship given a set of conditions specific to the transportation
product in question (referred to as alternative-specific attributes, such as travel time,
comfort, convenience), and also specific to the users (income levels and other socio-
economic characteristics). Changes in such conditions often result in changes in
the levels of transportation demand, even at fixed price of that product. For
example, increased unemployment would likely lead to reduced demand for travel. Also,
an increase in costs associated with auto use is likely to result in increased transit
demand, even if transit fares remain the same. When such changes in conditions (other
than price) occur, they are represented as a shift in the demand curve shown as Figure
below (upward shift for increased demand, D1 → D2; and downward shift for
decreased demand, D1 → D3)

Figure: Demand Curve

64
Natnael Melsew
Transportation Planning and Economics

Figure 3.2: Shifts in the demand curve

[Link]. Transportation Demand Functions

A basic feature of transportation systems analysis is the prediction of transportation

demand or changes thereof. The level of transportation demand (D) may be expressed
as a function of activity system attributes (A), and the prevailing level of service (S), as
shown as Equation.

𝐷 = 𝑓(𝐴, 𝑆)

Transportation demand models, such as that shown as Equation 5.1, are used to
determine the volume of travel demanded, at various levels of service and have been
described as “a representation of human behavior which can be used to predict how
individuals or firms [or groups thereof] will change transportation choices in response
to changes in future conditions” (Manheim, 1979). Within the context of transportation
economic, a trip maker is defined as a consumer, in the economics meaning of the word,
as the trip maker, by planning a trip, seeks to consume the service offered by
transportation facilities. There are two types of demand functions:
65
Natnael Melsew
Transportation Planning and Economics

1. Disaggregate demand functions: these predict the behavior of a single

consumer in response to changes in future conditions,
2. Aggregate demand functions: these predict the behavior of a group of
consumers such as a household, in response to changes in future conditions.
3.4.2. Analysis of Transportation Supply

The supply of a transportation product represents the quantity of that product a

producer is willing to offer at a given price. However, transportation supply may also
be associated with the quality of the product. At a given time, transportation facility
supply depends on price: higher prices are an incentive for producers to make more
profits who therefore increase supply levels. A hypothetical example of a transportation
supply function is provided as Figure 5-3. This represents the amount of transportation
products that suppliers are willing to make available at various prices. Transportation
supply functions are useful in transportation planning because they enable the
determination of expected supply at any future price.

A specific supply curve represents the supply-price relationship given a set of conditions
specific to the transportation product in question (referred to as alternative-specific
attributes, such as travel time, comfort, convenience), and also specific to the producers
(such as technology, policy and governmental intervention through policies and
regulation). Changes in such conditions often result in changes in the levels of
transportation supply, even at fixed price of that product. For example, improved
increased unemployment would likely lead to reduced demand for travel. Also, an
increase in costs associated with auto use is likely to result in increased transit demand,
even if transit fares remain the same. When such changes in conditions (other than
price) occur, they are represented as a shift in the supply curve shown as Figure below
(upward shift for increased demand, S1 → S2; and downward shift for decreased
demand, S1 → S3) (Manheim, 1979).

66
Natnael Melsew
Transportation Planning and Economics

Increases in transportation supply may be traditionally thought of in terms of

increasing the fleet size of a transit company or building new roads or increasing the
number of lanes for existing roads. However, it is possible to increase supply without
such physical capital-intensive investments (Manheim, 1979). For instance, the use of
intelligent transportation systems could lead to increased supply without any physical
enlargements of the road network.

Figure 3.3: Supply Curve

67
Natnael Melsew
Transportation Planning and Economics

Figure 3.4: Shifts in the Supply Curve

3.4.3. Equilibrium of Transportation Demand and Supply

Like the supply function, the transportation demand function is a relation between
quantities of goods and price. The general forms of the demand and supply functions
(Figures 3.3 and 3-4) suggest that there could exist a point at which the demand of a
transportation commodity is equal to its supply. Such a state is indicative of equilibrium.

Equilibrium is said to be attained when the factor that affect the quantity demanded
and those that determine the quantity supplied result inbeing statically equal (or
converging toward equilibrium).

Example 1: ABC bus transport service has determined the price of a seat on a
particular route to be p = 200 + 0.02n. The demand for this route by bus has been
found to be n = 5000 – 20p, where p is the price in birr, and n is the number of seats
sold per day. Determine the equilibrium price charged and the number of seats sold per
day.

Solution:

68
Natnael Melsew
Transportation Planning and Economics

𝒑 = 𝟐𝟎𝟎 + 𝟎. 𝟎𝟐𝒏

𝒏 = 𝟓𝟎𝟎𝟎 − 𝟐𝟎𝒑

Solving these two equations simultaneously, we obtain p = $214.28 and n = 714 seats.

Discussion: - the logic of the two equation appears reasonable. If the of a bus ticket
rises, the demand would naturally fail.

Example 2: The travel time on a stretch of highway lane connecting two activity centers
has been observed to follow the equation representing the service function:

t = 15 + 0.02v

where t and v are measured in minutes and vehicle per hour respectively.

The demand function for travel connecting the two activity centers is

v = 4000 – 120t.

a) Sketch these two equations and determine the equilibrium time and speed of
travel.
b) If the length of the highway lane is 20 miles, what is the average speed of
vehicles traversing this length?

Solution:

t = 15 + 0.02v

v = 4000 – 120t

a) Solving these two equations simultaneously yields:

v = 647 vehicle/hr

t = 27.94 minutes

b) Therefore speed = (20 × 60)/27.94 = 42.95 mph

69
Natnael Melsew
Transportation Planning and Economics

3.4.4. Sensitivity of Travel Demand

In the planning and evaluation of transportation systems and associated investments, it

is often useful to have knowledge of the changes in transportation demand caused by
changes in attributes of the transportation system or its environment. A particular
instance is the change in demand for a given mode in response to changes in price of
that mode. Given the functional form of the travel demand function, it is possible to
derive a marginal effects model that estimates any one of the following:

✓ Change in demand in response to unit change in attribute

✓ Change in demand in response to unit percent change in attribute
✓ Percent change in demand in response to unit percent change in attribute

Transportation demand elasticity may be defined as the degree of responsiveness of

transportation demand in response to a unit change in demand-related or attributes
such as price or income.

Elasticity may be classified in to two basic categories and these are

a. Elastic: - if the quantity demand of the product changes more than

proportionally when its price increases or decreases.

70
Natnael Melsew
Transportation Planning and Economics

For Example: - If the travel cost of mini-bus taxi from Gebiya to Adisalem increase
from 5 birr to 10 birr while there is no an increment in price for other mode of transport
like Bajaj or buses, the demand for mini bus will dramatically reduce. Since, the traveler
will be expected to shifts to other mode of transport. So, this time the elasticity becomes
elastic since a increment in price results significant reduction in demand of minibus.

b. Inelastic: - if the quantity demand of the product changes very little when its
price fluctuates.

For Example: - An increment in fuel con will not have a significant impact on the
demand of travel no mater the traveling cost fluctuates.

When calculating elasticity of demand there are two possible ways.

i. Point elasticity
ii. Arc elasticity

Point Elasticity

Elasticity of demand takes the elasticity of demand at a particular point on a curve (or
between two points). This is typically expressed as follows:

𝜕𝑞⁄𝑞 𝜕𝑞 𝑝
𝑒𝑝 = = ×
𝜕𝑝⁄𝑝 𝜕𝑝 𝑞

Arc Elasticity

Elasticity of a demand measures elasticity at the midpoint between the two selected
points and arc elasticity can be calculated as follow

𝜕𝑞⁄𝑞 𝜕𝑞 𝑝 𝑄1 − 𝑄0 (𝑃1 + 𝑃2 )⁄2

𝑒𝑝 = = × =
𝜕𝑝⁄𝑝 𝜕𝑝 𝑞 𝑃1 − 𝑃0 (𝑄1 + 𝑄0 )⁄2

For a linear demand function, we can determine the elasticity with respect to price by
the derivative of the equation

71
Natnael Melsew
Transportation Planning and Economics

𝛿𝑞 𝑝 −𝛽𝑝
𝑒𝑝 = =
𝛿𝑝 𝑞 𝑞

Example 3: Point Elasticity

An aggregate demand function is represented by the equation

q = 200 – 10p

where q is the quantity of a good, and p is the price per unit. Find the price elasticity of
demand when

q = 0, q = 50, q = 100, q = 150, q = 200 units

corresponding to

p = 20, p = 15, p = 10, p = 5, p = 0 cents

Solution:

Substituting for price p using the equation of demand will give us

𝛼
𝑒𝑝 = 1 − 𝑤ℎ𝑒𝑟𝑒 𝛼 = 200
𝑞

200
𝑒0 = 1 − =0
200
200
𝑒5 = 1 − = −0.133
150
200
𝑒10 = 1 − = −1
100
200
𝑒15 = 1 − = −3
50
200
𝑒20 = 1 − = −∞
0

72
Natnael Melsew
Transportation Planning and Economics

Where the elasticity is less than -1 (i.e. more negative than -1) the demand is described
as being elastic, meaning that the resulting percentage change in quantity of trip making
will be larger than the percentage change in price. In this case, demand is relatively
sensitive to price change. However, when the elasticity is between 0 and -1, the demand
is described as being inelastic or relatively insensitive. Let’s see this ranges in figure

Example 4: Arc Elasticity

When admission rate to an amusement park was $5 per visit, the average number of
visits per person was 20 per year. Since the rate has risen to $6, the demand has fallen

73
Natnael Melsew
Transportation Planning and Economics

to 16 per year. What is the elasticity of demand over this range of prices?

Solution:

Arc price elasticity

∆𝑄(𝑃1 + 𝑃2 )⁄2 (16 − 20)5.5

𝑒𝑝 = − =− = 1.22
∆𝑃(𝑄1 + 𝑄0 )⁄2 (6 − 5)18

Therefore, it is elastic since 1.22 > 1

Discussion:

Note that there are problems connected with arc price elasticity because it will differ
from point elasticity, the difference increasing as ∆P or ∆Q increase. Also note that
elasticity is a unit-free measure of the percent change in quantity demanded (or
supplied) for a 1 percent change in price.

3.5. Factors Affecting Elasticity

As stated earlier, elasticity is the change in demand in response to a unit change in

levels of attributes of the transportation system or its environment. Such attributes
include characteristics of the transportation system such as

✓ Price and level of service associated with a given mode

✓ Price and level of service of competing modes

characteristics of the socio-economic system such as

✓ Income
✓ Level of employment
✓ Household size
✓ Car ownership, etc.

74
Natnael Melsew
Transportation Planning and Economics

Of these factors, of particular interest are price and income. The most widely used
factors that affect elasticities of demand is

a. Income Elasticity
b. Price Elasticity
3.5.1. Income Elasticity

The elasticity of demand with respect to income, or income elasticity, is the change in
demand for a good in response to a unit change in income of the consumer of that
good. Income elasticities have a special significance in travel demand modeling. Often,
the transportation planner seeks to evaluate the impact of changing socio-economic
trends on the demand for or share of various modes of transportation. A major
indicator of economic trends is income. In disaggregate demand modeling, it is
sought to determine the sensitivity of changing income on the demand for a particular
mode. Income elasticity is generally defined as the change in demand in response to
a unit change in income. In transportation economics, a good service is considered
normal good, if there is a direct relationship between the demand for that commodity
and the income of the consumer. A good is a superior good, if it goes up in demand
when a consumer income increase and its share in income also goes up(ei>0). On the
other hand, a good is inferior good, if the demand for the good goes down when a
consumer’s income goes up. In developed countries, automobile travel is considered
superior while mass transit is considered an inferior good.

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑

𝑒𝑖 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒

3.5.2. Price Elasticity

The elasticity of demand with respect to price, or price elasticity, is the change in
demand for a good in response to a unit change in the price of the good. A study
of price elasticities is important because it is often sought to assess the impacts of

75
Natnael Melsew
Transportation Planning and Economics

changing prices of a good or rival goods (due to past supply and demand conditions)
on the demand of that good. The level of price elasticity depends on factors such as

a. Price of rival goods

b. Income-share of the good
c. The scope of definition of the good
d. Whether the good is considered a luxury or a necessity
a. Price of rival goods

A consumer who spends a substantial percentage of income on a particular good is

more likely to seek a substitute good when the price of the good increases.

b. Scope of definition:

Goods that have narrow definitions are more likely to have more substitutes, and are
therefore expected to have a more elastic demand.

c. Price and availability of rival goods:

The lower the price and greater availability of substitutes, the greater the elasticity of
demand of the good with respect to price.

d. Luxury vs. substitute goods

Goods that are considered necessities typically have price inelasticity’s, while luxury
goods are relatively elastic.

[Link]. Elasticity and Total Revenue

Total Revenue in economics refers to the total receipts from sales of a given quantity
of goods or services. It is possible to tell what the total revenue (price output) of a firm
is likely to be if the price of a unit changes

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑

𝑒=
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
76
Natnael Melsew
Transportation Planning and Economics

The relation between elasticity and revenue will be illustrated as follow

If e > 1,

Price and total revenue are negatively related (more elastic). Therefore, an increase in
price will reduce total revenue, but decrease in price will increase total revenue.

If e < 1,

Price and total revenue are positively related (inelastic). in which case, an increase in
price will increase total revenue, and a decrease in price will decrease total revenue.

If e = 1,

Total revenue will remain the same whether the price goes up or down.

Example 6: A bus company’s linear demand curve is P = 10 – 0.05Q, where P is the

price of a one-way ticket, and Q is the number of tickets sold per hour. Determine the
maximum revenue along the curve.

Solution:

P = 10 – 0.05Q

R = Q(10 – 0.05Q) where R = total revenue

R = 10Q – 0.05Q2
77
Natnael Melsew
Transportation Planning and Economics

dR/dQ = 10 – (0.05 × 2) Q

and this is equal to zero when R is maximum

Therefore, Q = 100 when R is 500 (maximum).

Discussion:

Starting from a price of $10 at near zero tickets sold and decreasing the price eventually
to half ($5), the revenue steadily increases to a maximum of 4500/hour (over the elastic
portion). After that, the revenue decreases as the price further decreases and finally
approaches near zero, when the demand approaches 200 (over the inelastic portion).

3.6. Application of Price Elasticities: Consumer Surplus and Latent

Demand

Consumer surplus is a measure of the monetary value made available to consumers by

the existence of a facility. It is defined as the difference between what the consumers
might be willing to pay for a service and what they actually pay. A patron of a bus service
pays a fare of, say, 50 cents per trip but would be willing to pay up to as much as 75
cents per trip. In this case, her consumer surplus is 25 cents. Consumer surplus may be
determined from a survey of customers to determine how much they are willing to pay
for a good or service. Recent studies have evaluated the willingness of road users to pay
for improvements that would enhance safety on their highways (Islam and Sinha, 2002).
Such information can be combined with data on actual payments to determine the
amount of consumer surplus per person or for a group of persons. Alternatively,
consumer surplus can also be determined from the demand-supply curve, as the
demand curve can be considered as an indicator of the utility of the good or service in
terms of price, as illustrated in Figure 5-8. The area ABC represents the total consumer
surplus. Maximization of consumer surplus is the maximization of the economic utility

78
Natnael Melsew
Transportation Planning and Economics

of the consumer (Khisty and Lall, 2002). The use of the consumer surplus concept is
common in the area of the evaluation of transit systems.

Figure 3.5: Concept and change in consumer surplus

79
Natnael Melsew
Transportation Planning and Economics

Chapter Four

Cost Analysis in the Evaluation of Transportation System

4.1. Basic Issue in Evaluation

The basic concept of an evaluation is simple and straightforward, but the actual process
itself can be complex and involved. A transportation project is usually proposed because
of a perceived problem or need. For example, a project to improve safety at a railroad
grade crossing may be based on citizen complaints about accidents or time delays at the
crossing site. In most instances, there are many ways to solve the problem, and each
solution or alternative will result in a unique outcome in terms of project cost and
results. In the railroad grade crossing example, one solution would be to install gates
and flashing lights; another solution would be to construct a grade separated overpass.
These two solutions are quite different in terms of their costs and effectiveness. The
first solution will be less costly than the second, but it also will be less effective in
reducing accidents and delays.

A transportation improvement can be viewed as a mechanism for producing a result

desired by society at a price. The question is, will the benefits of the project be worth
the cost? In some instances, the results may be confined to the users of the system (as
in the case of the grade crossing), whereas in other instances, those affected may include
persons in the community who do not use the system.

Prior to beginning an analysis to evaluate a transportation alternative, the engineer or

planner should consider a number of basic questions and issues. These will assist in
determining the proper approach to be taken, and these questions are

✓ What data are needed

✓ What analytical techniques should be used.

The evaluation process will have the following tasks

80
Natnael Melsew
Transportation Planning and Economics

1. Setting the objectives of evaluation

2. Identifying the project stakeholders
3. Selecting and measuring the evaluation criteria
4. Measures of effectiveness

Objective of Evaluation

What information is needed for project selection? The objective of an evaluation is to

furnish the appropriate information about the outcome of each alternative so that a
selection can be made. The evaluation process should be viewed as an activity in which
information relevant to the selection is available to the person or group who will make
a decision. An essential input in the process is to know what information will be
important in making a project selection. In some instances, a single criterion may be
paramount (such as cost); in other cases, there may be many objectives to be achieved.
The decision maker may wish to have the relative outcome of each alternative expressed
as a single number, whereas at other times, it may be more helpful to see the results
individually for each criteria and each alternative.

There are many methods and approaches for preparing a transportation project
evaluation, and each one can be useful when correctly applied. Two classes of evaluation
methods are considered that are based on a single measure of effectiveness: The first
reduces all outcomes to a monetary value, and the second reduces all outcomes to a
numerical relative value. Finally, evaluation is viewed as a fact-finding process in
which all outcomes are reported separately in a matrix format so that the decision maker
has complete information about the project outcome. This information can be used in
public forums for citizen input and the decision process can be extended to include
public participation.

Evaluations also can be made after a project is completed to determine if the outcomes
for the project are as had been anticipated. Post facto evaluation can be very helpful in

81
Natnael Melsew
Transportation Planning and Economics

formulating information useful for evaluating similar projects elsewhere or in making

modifications in original designs. Thus, post facto evaluations are described and
illustrated using the results of evaluations for completed projects.

4.2. Economic Evaluation Methods

An economic evaluation of a transportation project is completed using one of the

following methods:

a. Present worth (PW)

b. Equivalent uniform annual cost (EUAC)
c. Benefit– cost ratio (BCR)
d. Internal rate of return (ROR)

Each method, when correctly used, will produce the same results. The reason for
selecting one over the other is preference for how the results will be presented. Since
transportation projects are usually built to serve traffic over a long period of time, it is
necessary to consider the time-dependent value of money over the life of a project.

a. Present Worth

The most straightforward of the economic evaluation methods is the present worth,
(PW) since it represents the current value of all the costs that will be incurred over the
lifetime of the project. The general expression for present worth of a project is
𝑁
𝐶𝑛
𝑃𝑊 = ∑
(1 + 𝑖)𝑛
𝑛=0

Where

𝐶𝑛 = Facilities and user costs incurred in year n

𝑁 = service life of the facility (in years)
𝑖 = rate of interest
82
Natnael Melsew
Transportation Planning and Economics

Net Present Worth

The present worth of a given cash flow that has both receipts and disbursements is
referred to as the net present worth (NPW).

The use of an interest rate in an economic evaluation is common practice because it

represents the cost of capital. Money spent on a transportation project is no longer
available for other investments. Therefore, a minimal value of interest rate is the rate
that would have been earned if the money were invested elsewhere. For example, if
$1000 were deposited in a bank at 8 percent interest, its value in five years would be
1000(1+0.08)5 = $1469.33. Thus, the PW of having $1469.33 in five years at 8 percent
interest is equal to $1000, and the opportunity cost is 8 percent. Discount rates can be
higher or lower, depending on risk of investment and economic conditions.

It is helpful to use a cash flow diagram to depict the costs and revenues that will occur
over the lifetime of a project. Time is plotted as the horizontal axis and money as the
vertical axis, as illustrated in Figure 13.3. Using Eq. 13.5, we can calculate the NPW of
the project, which is
𝑁 𝑁
𝑅𝑛 𝑆 𝑀𝑢 + 𝑂𝑛 + 𝑈𝑚
𝑁𝑃𝑊 = ∑ + − ∑ − 𝐶𝑜
(1 + 𝑖)𝑛 (1 + 𝑖)𝑛 (1 + 𝑖)𝑛
𝑛=1 𝑛=0

Where 𝑁 = service life, year

𝐶𝑜 = initial construction cost

𝑀𝑢 = maintenance cost in a year
𝑂𝑛 = operation cost in a year
𝑈𝑛 = user cost in a year n
𝑆 = salvage value
𝑅𝑛 = revenues in year n

83
Natnael Melsew
Transportation Planning and Economics

The typical cash flow for diagram for the transportation alternative and equivalent as
Net present value will be

b. Equivalent Uniform Annual Worth

The conversion of a given cash flow to a series of equal annual amounts is referred to
as the equivalent uniform annual worth (EUAW). If the uniform amounts are
considered to occur at the end of the interest period, then the formula is

𝑖(1 + 𝑖)𝑁
𝐸𝑈𝐴𝑊 = 𝑁𝑃𝑊 [ ] = 𝑁𝑃𝑊(𝐴⁄𝑃 − 𝑖 − 𝑁)
(1 + 𝑖)𝑁 − 1

Similarly,

(1 + 𝑖)𝑁 − 1
𝑁𝑃𝑊 = 𝐸𝑈𝐴𝑊 [ ] = 𝐸𝑈𝐴𝑊(𝑃⁄𝐴 − 𝑖 − 𝑁)
𝑖(1 + 𝑖)𝑁

84
Natnael Melsew
Transportation Planning and Economics

c. Benefit–Cost Ratio

The ratio of the present worth of net project benefits and net project costs is called the
benefit– cost ratio (BCR). This method is used in situations where it is desired to show
the extent to which an investment in a transportation project will result in a benefit to
the investor. To do this, it is necessary to make project comparisons to determine how
the added investment compares with the added benefits. The formula for BCR is

𝐵2⁄1
𝐵𝐶𝑅2⁄1 =
𝐶2⁄1

where

✓ 𝐵2⁄1 = reduction in user and operation costs between higher-cost Alternative 2

and lower-cost Alternative 1, expressed as PW or EUAW
✓ 𝐶2⁄1 = increase in facility costs, expressed as PW or EUAW

If the BCR is 1 or greater, then the higher cost alternative is economically attractive.

If the BCR is less than 1, this alternative is discarded

Correct application of the BCR method requires that costs for each alternative be
converted to PW or EUAW values. The proposals must be ranked in ascending order
of capital cost, including the do-nothing alternative, which usually has little, if any, initial
cost. The incremental BCR is calculated for pairs of projects, beginning with the lowest
cost alternative. If the higher cost alternative yields a BCR less than 1, it is eliminated
and the next-higher cost alternative is compared with the lower cost alternative. If the
higher cost alternative yields a BCR equal to or greater than 1, it is retained and the
lower cost alternative is eliminated. This process continues until every alternative has
been compared. The alternative selected is the one with the highest initial cost and a

85
Natnael Melsew
Transportation Planning and Economics

BCR of 1 or more with respect to lower cost alternatives and a BCR less than 1 when
compared with all higher cost projects.

d. Internal Rate-of-Return

The interest rate at which the PW of reductions in user and operation costs B2/1 equals
the PW of increases in facility costs C2/1 is the rate of return. If the ROR exceeds the
interest rate (referred to as minimum attractive rate of return), the higher cost project
is retained. If the ROR is less than the interest rate, the higher-priced project is
eliminated. The procedure for comparison is similar to that used in the BCR method.

Example 4.1: Illustration of Economic Analysis Methods

The Department of Traffic is considering three improvement plans for a heavily

traveled intersection within the city. The intersection improvement is expected to
achieve three goals: improve travel speeds, increase safety, and reduce operating
expenses for motorists. The annual dollar value of savings compared with existing
conditions for each criterion as well as additional construction and maintenance costs
is shown in Table below. If the economic life of the road is considered to be

50 years and the discount rate is 3%, which alternative should be selected? Solve the
problem using the four methods for economic analysis.

86
Natnael Melsew
Transportation Planning and Economics

Solution

87
Natnael Melsew
Transportation Planning and Economics

88
Natnael Melsew
Transportation Planning and Economics

89
Natnael Melsew
Transportation Planning and Economics

90
Natnael Melsew
Transportation Planning and Economics

91
Natnael Melsew
Transportation Planning and Economics

92
Natnael Melsew