Vehicle Leases – An alternative vector for road pricing

The ownership model under Mobility-as-a-Service has often presented the dichotomy of an owned autonomous vehicle, the way Americans most typically use cars, vs. a shared autonomous vehicle (autonomous vehicles that come to you like a taxi). But many automakers are now trying to move customers to the leasing model of vehicles, which gives owners a long-term stake in an individual car, but not full ownership rights. The reasons a customer may prefer a lease is that technology is rapidly changing, and who wants to get stuck with an out-of-date vehicle. Alternatively, they may anticipate their tastes or needs change, and don’t want the hassle of resale. Automakers have often leased things like Electric Vehicles which require a major overhaul at some point in time, and this also gets them a built-in service business, as the incentive for a lessee  would otherwise be to not service the vehicle and run-down capital stock, while the lessor wants to maintain capital so they can re-lease (or sell) the vehicle subsequently after the expiration of the lease.

Moving automobile ownership to the lease model, particularly with EVs, provides another advantage, this one for the road administrators. It reduces the number of players who own cars and makes a new model of road service provider possible.

Suppose, instead of purchasing road services from the government, (now via gas tax, later via mileage based user fees), travelers would purchase transportation services (the right to travel at a location at a time for a price) from independent road service providers. Road service providers (RSP) would purchase capacity from the infrastructure owner (presumably the government [or a government-like non-profit road utility]). If an RSP’s customers over-consumed the road, the RSP would pay a penalty. RSP would charge its customers accordingly to maximize profits in this new competitive market.
What does this allow?

(1) It allows competing RSPs to offer a variety of bundled services to customers (a per use charge, a charge for a the right to travel 10 times per month, or unlimited service, or service bundled with cell phones, or insurance or other services e.g), but to each have different bundles. RSPs are likely to be better at product differentiation and price discrimination than governments with omnipresent political and equity concerns.

(2) It allows the government to stay out of the data ownership business, it would be responsible only for identifying which RSP a traveler subscribed to, and thus would eliminate “the government is tracking me” problem with road pricing. (We still have big brother business is tracking me, but if you have a cell-phone or credit card, that game is already lost)

(3) It provides new markets for private industry. This could be an app as part of a cell-phone or GPS or in-vehicle service (e.g. OnStar) or insurance (AAA, Progressive). The only technology standard that would need to be established by the government is a simple (e.g. RFID) sticker adjacent to the license plate verifying the RSP and the government with inexpensive RFID readers to count the number of cars on each link by time of day with the RSP. The private firms would be responsible for monitoring their own customers.

(4) It provides a more stable revenue stream from government, which is getting revenue directly from RSPs who bid on road space. In congested areas, road space would go for a higher price, in uncongested areas, RSPs would negotiate a per-use charge with governments.

Part of the lease can include terms about when and where you can use the road. Just as lease terms today allow X miles per year, new terms could be Y peak hour miles, and Z off-peak miles. The automaker/vehicle owner would then compensate the road owners for use of the roads by the cars they lease-out, while setting rates and incentives for vehicle users/leaseholders to manage their demand. Private firms would be able to explore demand space and develop interesting combinations of services (the price for traveling on certain facilities at certain times) in a way that the public sector just cannot do for issues of both capability and fairness.

ITS Minnesota Luncheon

I am talking about The End of Traffic and the Future of Transport at the ITS Minnesota luncheon on Wednesday. (Registration)

Educational Session and/or Luncheon
Wednesday, June 1st
Reminder to register for next Wednesday’s Educational Session and Luncheon. Please note that there are two options for registering:
Educational Session & Luncheon
OR
Luncheon Only
Educational Session
“ITS Planning, Funding, Operations and Maintenance – the State and Federal Perspective”
Presenters include:
Mark Nelson – MnDOT Finance
Sue Porter – MnDOT TSMO
John Corbin – FHWA
Luncheon Keynote Presentation
David Levinson – UMN Department of Civil Engineering
Frank Douma – Huber H. Humphrey School of Public Affairs
Agenda
Check-In & Continental Breakfast – 7:30 am
Educational Session – 8:00 am to 11:30 am

Luncheon – 11:45 am to 1:00 pm

Location
Holiday Inn East
2201 Burns Avenue, St. Paul, MN 55119

Symposium on the Sharing Economy materials available

CTS Conversations reports Symposium on the Sharing Economy materials available, including the slides from my talk on Mobility-as-a-Service:

Did you miss last week’s Symposium on the Sharing Economy? Presentation slides and video recordings from the event are now available!

The symposium began with a one-day workshop that brought together researchers from around the globe to discuss their work, foster collaboration, and identify future research needs. Several faculty from the U of M’s Initiative on the Sharing Economy gave presentations.

The second day of the event, a public forum, featured opening presentations by Initiative Director Saif Benjaafar and Nice Ride Executive Director Bill Dossett, Executive Director. Tom Fisher, director of the Metropolitan Design Center at the U of M’s College of Design, gave the luncheon keynote. The event also included panel discussions with leaders from industry (including Nice Ride, HOURCAR, and Zipcar), academia, nonprofits, and government.

The symposium was one of the Initiative’s first activities. Launched in 2015, the Initiative was established by CTS in partnership with Professor Saif Benjaafar and other faculty members across the U of M and is administered by CTS. It aims to position the U of M at the forefront of the development of a science of the sharing economy.

Symposium materials available on the Initiative website include:

Stay tuned for more coverage of the event in next month’s issue of Catalyst.

AVs After Alphabet

Word on the street is that Alphabet (née Google) is looking for some revenue from its Automated Vehicle unit, and absent that, might be getting bored with the whole endeavor. Google has gotten bored with things before, and one can imagine it doesn’t view itself as having an infinite pocket to pay for interesting things. There have been reports of this before.

One of the great questions is how long do you tolerate losses in an operation before you cut your losses and convince yourself there will never be gains. Many projects are undertaken (ventures are funded) with great promise.

Yet technological change often happens one bankruptcy at a time, where first movers borrow heavily to invest in new systems with unproven demand. This creates second mover advantages. This is a danger for initial massive investment in self-driving cars in the near future, especially as there doesn’t seem to be any demand from the public currently. (Recognizing that as Henry Ford never said (but almost certainly felt) “If I had asked people what they wanted, they would have said faster horses.”)

In the autonomous vehicle market, suppose someone claims there will be gains in excess of losses, and someone else, with access to a checkbook, believes them. Now we all understand Expected Value depends both on the Potential and the Probability of that Potential being realized. In practice both of those are uncertain and dynamic. Today’s potential in today’s market conditions differ from tomorrow’s. Today’s probabilities also differ from tomorrow’s.* At what point do you recognize the potential as lower than claimed, and the probability as lower still? When, in Bayesian terms, do you update your priors?

In Alphabet/Google’s case, I think the potential of being the first mover is lower because there are now many more people serious about AVs since Google kick-started the latest wave of development of self-driving cars, following upon the DARPA Urban Challenge. In contrast, the likelihood of success might be higher, since there is no more proof-of-concept.

Unless Alphabet imagines itself actually manufacturing cars (probably in a contract facility),  one assumes either it hopes to get revenue from (a) more eyeballs on Google-ad-powered screens (phones, dashboard, and especially heads-up displays)  in a world of AVs, (b) cutting a licensing deal with manufacturers, or (c) providing mobility services directly a la Uber-type of business.

But in a sense they have been overtaken. For services, all major automakers have now partnered with some other company to explore ride-hailing. Toyota and Volkswagen are the latest to announce this (following historically on similar patterns where automakers invested in rental car companies (e.g. Hertz by GM 1925-53 and Ford 1987-2005, Avis by GM 1989 – 96, Dollar Thrifty by Chrysler 1990-97). Daimler owns car-sharing service company Car2Go and Moovel and is certainly looking at this market. Google rival Apple invested in Chinese hailer Didi.

For autonomous technology, Tesla has cars on the road already.While Tesla Autopilot is not the equivalent of Google cars, as it still requires driver attention, it is also a real product accumulating real experience at an accelerating rate, as shown in the graph, with two orders of magnitude more distance traveled and seemingly fewer incidents per distance traveled (I am going on press-reports of Google and Tesla crashes).

Trends in Autonomous Vehicle Usage, note this is a Log scale.
Trends in Autonomous Vehicle Usage, note this is a Log scale.

If the logic of machine learning is right, it will get better and better over time. There have apparently yet to be serious crashes with 100 million miles of Autopilot experience (though there have been a few issues, there have also been claims of lives saved), so perhaps this is the right technological trajectory.

This is the incrementalist approach, leaving the steering wheel and brakes facing the driver, which counters the more radical Google approach of removing (almost) all control from the driver, and trusting the machine completely. The risk has always been the transfer, when the car tells the driver to take over if the driver isn’t ready. But if that issue is small compared to the general safety benefit of letting the machine do the steering, accelerating, and braking, it is a risk worth taking.

So will Google close its unit and set its code and data free,  let it wither away as staff start up spinoffs like Otto, or sell it outright to a manufacturer if they choose not to pursue it with gusto? Or, perhaps the rush to dominate the initial market for AVs will lead to a unsustainable bubble that hits everybody’s valuation (not just Alphabet’s).

I expect there is value to the unit collectively above and beyond the value of the individuals (though I have no personal knowledge), so one hopes they keep the team together, under their ownership, or another patient patron.

 


* In more typical infrastructure terms, when someone comes and says the Northstar Line will have a Benefit Cost ratio of 2, but it turns out to have a B/C ratio of 0.15, how long do you keep pouring good money after bad? At what point do you recognize the potential as lower than claimed, and the probability as lower still? Sacramento, for instance, is considering shuttering a disappointing LRT line.

The Economics of Academic Self-promotion

Marketing is you telling others about yourself. Public relations is having someone else tell others about you.

Unless you are independently wealthy you engage in some amount of self-promotion. You drafted a resume and applied for a job, rather than sat at home and waited for someone to knock on your door (though to a first approximation, that is how I met my wife). Even if someone knocked on your door, you at least filled out some paperwork. Even Leonardo da Vinci had to write a resume.

Some people are better at that than others. Some people do it for a living, and have created jobs where the only thing they are selling is themselves, not the thing they are promising to do. Salesmen say “Always be closing“, academics might say the same “Always be citable”.

wileecoyotebusinesscardImagine the life of a politician, (worst case- a Presidential candidate) giving largely the same speech every day. Recalling how she pulled herself up from her bootstraps, or if not her, her grandparents, and is thus both humble and grateful, (reminding you how humble and grateful she is) and genetically-deserving, since it was her ancestors who worked so hard, living in a tarpaper shack, working from the age of 8, to put food on the table for 18 brothers and sisters. (Cue 4 Yorkshiremen Sketch), and appreciative they had it so good.

For years a politician is running for office, selling themselves and the promise of how they will act, and once elected is running for re-election. There is hardly any time to actually act, and  the action is all too-often driven not by what is right but by what maximizes re-election chances. This is one great advantage of term-limits, it takes away the pressure for re-election – in game theory terms, it changes the repeated prisoner’s dilemma game from indefinite duration to one with a known end, so the strategy in a repeated game prisoner’s dilemma changes from cooperate to defect, where cooperation is cooperation with voters who elected you. Yet, there is still the pressure of getting hired in the revolving door somewhere.

Academics repeat themselves (teaching the same course year after year for starters), and more so if they are famous, giving interview after interview on the same topic. But most academics aren’t famous. Instead in academia we spend what seems to be inordinate amounts of time writing grant proposals, and a lot making presentations and networking, but at least our students get to do work, and hopefully documents (theses, papers) come out the other end.

I have a blog (you are here), on which I announce things (papers published, reports delivered, interviews granted, theses defended, conferences upcoming, and so on) to a slightly wider audience than would otherwise know about them.

I also post articles on my blog. It is after all my blog. If you are still reading, you are interested in them. Maybe you read for the articles, maybe for the announcements,  (though statistics tell me its usually the articles). In that case the announcements function like advertising.

I did not pull out a gun and make you read. I did not buy ads elsewhere to expose you unwillingly. I did not inundate you with announcements. I strive very hard not to say the same thing twice (in contrast with most marketing advice and every politician’s behavior), though I will announce both the working paper and the accepted publication. If I am successful, you will share my post on Facebook or Twitter or LinkedIn, and others will read it. That is public relations.

I archive my articles in a library, so someone else can find them. I maintain a website with pointers to my articles. Publishers cannot be assumed to be responsible enough to make them available. (I can count at least three journals that have ceased publication after I submitted articles in the last couple of decades, and one which took an Open Access paper and made it closed access until I complained more than once to the editor.)

But it is unseemly, somehow, for academics to appear to be engaged in marketing or public relations. Yet we all know it works. The most widely cited academics are seldom the deepest. The general cry is “Why are that bastard’s papers cited?” They got successful because someone saw their work. And people (including academics) are lazy [er, cost-minimizing], and cite what is cited, so they can copy the already formatted references. And they cite what they know, which depends on what they read and what they see presented at conferences and seminars.

And once something is cited twice, it is more likely (probably about twice as likely) to be cited a third time than something which is cited once is to be cited twice. There is a network effect here.

This is where self-citation helps juice numbers. The more times I cite myself, the more likely my paper will show up near the top of Google Scholar. Even better, form a mutual benefit scheme (I cite your papers if you cite mine), which is often (I suppose) never uttered, just observed. Some journals are well-known for this.

I suspect there is cross-over between papers mentioned in popular media and academic citation, so if you get an article on a website (newsy) that mentions and links your article, it will filter into academic citation downstream.

This is not to say self-citation is inherently bad, it is quite logical. If I work in an area, I am likely to have worked in an area before, so my previous papers are more likely to be relevant than some random person’s. More to the point, if I am using a similar methodology on new data, I can just cite that previous paper with a comment which basically says “details there”, and make this paper shorter and less repetitive.

Citations are currency exchangeable for promotion and tenure. We mine citations like bitcoin by writing them into papers and distribute them to our friend and colleagues (and occasionally our frenemies, but only when we say they are wrong – nothing stokes citations like controversy), who all we hope will repay the favor potlatch style. The only thing keeping citations from exploding are the good sense of authors, and peer reviewers, and editors, who want to keep the numbers down, page count shorter, and deny additional wealth in terms of citations to their rivals by telling authors to be “less obsequious.”

In the end, what matters in knowledge accumulation and science is not citations and publicity but truth. In the end, widely cited, but wrong, papers are still wrong. In the meantime, the authors of those papers had a nicer life because they earned more academic currency. While one hopes right papers are more widely cited than wrong ones, paradoxically it is far easier to write a wrong paper, and thus spend more time on promoting it, than it is to write a right one.

The Transportist

If you are especially eagle eyed, you may have noticed the name of the blog lost 5 letters recently. We don’t need no stinkin’ “ation”. As I noted in an earlier post It’s Transportational, we could save valuable time and resources if we shortened the most important word in our vocabulary.

There is a more important reason, and this has to do with verbal clarity. An anti-transportationist is one who opposes the transportation of prisoners and debtors to penal colonies [See Definition 2 here]. Now of course, those colonies have grown up to be fine states and countries, but the policies that made them are not appropriate. Thus,  I am an anti-transportationist. How can I be both a transportationist and an anti-transportationist at the same time?

To that end, I have also shortened my Twitter handle to @trnsprtst.

The Timeless Way of Building Roads

Noted architect and designer, Christopher Alexander, in The Timeless Way of Building (1979) wrote:

There is one timeless way of building. It is a thousand years old, and the same today as it has ever been. The great traditional buildings of the past, the villages and tents and temples in which man feels at home, have always been made by people who were very close to the center of this way. It is not possible to make great buildings, or great towns, beautiful places, places where you feel yourself, places where you feel alive, except by following this way. And, as you will see, this way will lead anyone who looks for it to buildings which are themselves as ancient in their form, as the trees and hills, and as our faces are.

In contrast, the great transport networks of the past eschewed the local beautiful places. They were made by people detached from the places these links served. They had to be, as the networks connected many places, and aimed to do so efficiently.  Though these networks paths are ancient, modern roads are built upon the travels of earlier indigenous populations or even animal trails, following what may seem today to be obvious convenient corridors. These corridors traded off the initial cost of construction for a reduction in long term travel times. Time savings measured often not in minutes per day, but millions and billions of minutes over centuries.  Many of these routes connected timeless places with each other and went through wilderness or later farm land.

With the advent of the railroad, the highway, and later the superhighway, networks, particularly, but not only, urban networks subsequently not only connected, they disconnected. They disconnected timeless places with themselves, severing places and obliterating one community for the gain of other communities. This was the modernist program, it was a reaction to timeless earlier pre-industrial paths which did little to disrupt local communities (though there was the inevitable complaints about early turnpikes and canals as well). But once scale became relevant, removing local access in the name of removing local friction ensured there would be tension between the needs of the neighborhood, village, or town and the needs of the region. The road would not only benefit the region as a whole, it would specifically disbenefit the local, who would bear the costs of severance and negative externalities, but share none of the access. This was certainly overdone, but that doesn’t mean none of it was worthwhile. There is value in faster connectivity, we measure this in travel time savings or land costs. Modern society would be impossible with the fast well-connected networks that enable the safe and efficient movement of people and goods. It is harder to determine how much value was lost by forced relocation and breaking the fine-grained social and economic networks in the neighborhoods like St. Paul’s Rondo.

Many newer projects try to reduce these impacts, for instance by boring under rather than bulldozing through communities,  (tunnels like Boston’s Big Dig, Seattle’s Alaskan Way, and parts of Sydney’s WestConnex are examples), but because of the new additional costs, these newer projects also are no longer efficient, their initial costs will never be recovered by future benefit, so we must question why they are constructed in the first place.

Transport corridors rarely bring joy. It is seldom that the journey is the reward. We certainly can do better in this regard, but we also must accept transport is a derived demand, and depends on the desire to go from one place to another. Destroying places to connect places is a strange way of achieving this end, but in the real-politic of planning, some places and people are more valued than others. It recalls everyone’s favorite planning villain, Robert Moses, who said something to the effect that “If the Ends Don’t Justify the Means, What the Hell Does?”

What people are quoting about “The End of Traffic and the Future of Transport”

Former student Peter Rafferty of the University of Wisconsin-Madison Traffic Operations and Safety Laboratory complements our new E-book. He says : “By the way, I really did enjoy your End of Traffic book. Thanks for all you do trying to keep our profession on a good track. – Peter”

He passes on this unsolicited praise that he sent to someone else when noting my ITS MN Luncheon Keynote talk (Details: June 1, 11:45 am – 1:00 pm Holiday Inn East. 2201 Burns Avenue, St. Paul, MN 55119 [One day this might be near the Gold Line BRT]).

Yes, this one definitely looks to be a winner.

 

You ought to read David Levinson’s e-book:

https://davidlevinson.org/books/the-end-of-traffic-and-the-future-of-transport/

 

There are a lot of good nuggets in there:

“This is not a journal article. We would like it to be read.”

“…the immaculate conception of deep fried crisps has yet to be discovered.”

“…catapult based freight delivery.”

“Convenience, safety, and inattention are hallmarks of future mobility.”

“…vinyl is coming back in vogue among hipster music fetishists.” (my little brother-in-law included)

Sweet use of vocabulary like nascent and sclerotic.

“The difference between a 2030 and 2020 model car likely will be far greater than the difference seen between any decade since 1920 and 1910.”

“The profession can move beyond the mindless application of arbitrary level of service standards that have besot our communities.” (rings of the MAP-21 performance measures, too)

“…humans are imperfectly attentive (if not perfectly inattentive)…”

“Developing a communal hallucination can organize individual activities…”

Setting the right toll

We in transport economics generally say roads are underpriced and travel is heavily subsidized by society at large. As a result, we over-consume travel. The solution is raising the price of travel.

One way of raising the price of travel is tolling new roads rather than letting them be free.

Scenario: A privately owned toll road or lane  in the context of free roads  will set profit maximizing toll, subject to regulation. Because the road would not have been built but for the private investors, this regulation will typically have been negotiated in the franchise agreement to be a light touch, so tolls will be close to profit maximizing. Since this is not a competitive market as taught in Econ 101, profit maximizing tolls are not equal to welfare maximizing, and instead will likely be too high.

Given that drivers have alternative roads, tolling the road too high will thus drive vehicles away from this road and onto other roads, which will be more congested (and polluted) than necessary. Total travel overall will be higher than without this road. However on competing routes, travel will be slightly lower (recognizing induced demand eats up some of the capacity, though consumer surplus should still rise),  than if the road did not exist, so this capacity, compared to its absence generally improves the transport welfare (consumers surplus) of travelers. However, this priced capacity compared to it being free, reduces the transport welfare of travelers.

Scenario: All roads tolled (these might be virtual tolls, like mileage based user fees, rather than traditional tollbooth or gantry style tolls) can only be achieved with the cooperation of the road owners, almost universally involving some level of government. While the system might be administered under contract, it will undoubtedly be at worst regulated like a monopolistic utility, with cost plus rate-of-return rates. The costs might include externalities, and not just direct costs, or maybe the externalities will be taxed separately (carbon taxes at refineries, e.g.; mandatory car insurance). These tolls will be close to welfare maximizing after covering costs (though the welfare maximizing toll may not cover costs, depending on the shape of the cost function and whether the road is congested).


 

Based on their history, individual toll roads are not an especially good business to invest in. They are high risk and the forecasts cannot be trusted.  New toll roads have tended to over-estimate demand and under-estimate costs. Eventually they need to pay their creditors, and the investors get wiped out. There are lots of reasons for this, but pity not the toll road builders, they do it to themselves.

Still, the key point is that tolling some of the roads may very well be worse than either tolling none of the roads or all of the roads. It introduces distortions, may result in new underutilized capacity in an environment where other roads remain congested, and discredits the premise of pricing in the mind of politicians and voters.  While incrementalism is generally a good strategy, the steps need to be in the right direction (for instance, tolling all of the roads some may be better than tolling some of the roads a lot and others not at all).