Late last year I provoked a bit of a fury with Transportation costs too much and the main follow-up Is transport too expensive?
For the first time, I will briefly list all of the hypotheses in one post.
My coauthors (alphabetically) include John Bedell, Peter Gordon, Michael Iacono, David King, Dick Mudge, Randal O’Toole, Lisa Schweitzer, Stephen Smith, and others who posted anonymously. It goes without saying (which means it doesn’t since I am saying it) that not everyone agrees with everything. At the bottom, I have grouped the causes into larger meta-causes where appropriate.
- Standards have risen [Smith’s Man of System].
- Principal-agent problem.
- Thin markets.
- There are in-sufficient economies of scale (Excess Bespoke Design).
- Projects are scoped wrong.
- Benefits are concentrated, costs are diffuse [Logic of Collective Action].
- Decision-makers are remote [Fatal Conceit].
- No one actually does B/C analysis.
- The highest demand areas for maintenance and new stock occur in places that are expensive.
- Project creep.
- Envy is a much bigger problem in public works than in personal life.
- Benefit cost is only as good as the integrity of the data and the analysts.
- Federal funds favor capital-heavy technologies and investments.
- Design for forecast.
- Planners and engineers are paid as percentage of total project cost [Principal-Agent Problem].
- Materials are scarcer (and thus more expensive).
- Regulations like ADA and environmental protection are driving up costs.
- Formula spending reduces the incentive or need to worry much about costs. This is obviously related to many of the other hypotheses already considered but I think deserves it’s own number.
- The State Aid system and associated standards.
- Stop/start investment.
- Poor commissioning.
- Separation of design and build.
- Doing construction on facilities still in operation.
- Union work rules (not wages)that inhibit productivity gains through new technologies.
- Fragmented governance leads to large and meandering projects rather than centralized projects. Politicians have to “share the wealth” of projects. This is perhaps a cause of “project creep.”
- Environmental Impact Statements (Reports) lead to “lock-in”
- Public-private partnerships trade additional up front costs for faster construction.
- Open government/costs of democracy.
- Climate change adaptation is increasing the costs of projects.
- Ratchet Effect.
- Baumol’s cost disease.
- Transit investment isn’t realizing any productivity gains from labor.
- Utility works are uncharged.
- Experience and Competence.
- Ethos, training and prestige.
- Government power.
- Legal system.
- Lack of user fee funding.
Some other points:
1. Standards arguably includes 14, 17, 19, 21, 24, 27, 29, 30,
4. Insufficient scale economies, there is some relationship to 1, since bespoke probably means higher quality (better local fitting).
5. Scoping, includes 10, 14, 22, 26
2 thoughts on “Why Transportation Costs Too Much, 39 Hypotheses and Counting”
All of those are good.
Goals for infrastructure are often mis-stated. For example, rail transit has little to do with transportation and a lot to do with trying to guide development – whether to favored developers or to favored locations.
The incentives are poorly aligned for optimal outcomes with respect to first costs versus life cycle costs. First costs are highly visible and the maintenance and life cycle costs are the responsibilities of other (future) agents. So while there is a lot of talk about life cycle costing my experience is that robust analysis is rarely done.
It’s difficult to eliminate poorly performing managers or agencies. Take-overs, bankruptcys, and other methods to reallocate capital are not effective in the public sector.
Public accounting appears to do a poor job of tracking assets, depreciation, unproductive assets (write-downs and sunk costs), intangible assets, and other accounting constructs that are used to manage private organizations.
There is no mention of coordination costs which are very high for collective actions and seem to be getting higher. (“Knowledge and Decisions” provides a good analysis for the difference between private sector and public sector decision making.)
There is no mention of right-of-way costs which can become prohibitive after public works projects have concentrated development. (It’s very interesting to see the redevelopment that occured after the Chicago fire and the San Francisco Earthquake.)
Number 25 sounds like a whole new blog post title in itself.
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