Infrastructure cost allocation methodology and practices

1. Heike Link CATRIN Seminar Sopot, 21 January 2009 Infrastructure cost allocation methodology and practices

2. Background for the CATRIN work 1. Cost allocation approaches for full-cost studies: • Long tradition • Highly sensitive on assumptions! 2. Marginal cost estimation: • Releatively new field • Too few studies for generalisation of results • Diverging results, wide range of estimates • Differentiation by vehicle types so far lacking Focus of CATRIN: new evidence on MC!

3. MC estimation for road - Methodologies 1. Duration approaches … • analyse impacts of traffic load and climate on lifetime of road surface • are based on measurements of road condition • assume a condition-responsive maintenance strategy • MC estimates based on „ideal“ conditions, might be overestimated

4. MC estimation for road - Methodologies Examples: • AASHO road test (4th power rule) • Newbery‘s fundamental theorem (1988) • Small and Winston 1988, Small 1989 • Lindberg 2002 (empirical test of the fundamental theorem), Haraldsson 2006

5. MC estimation for road - Methodologies 2. Econometric cost function approaches … • analyse the functional relationship between expenditures, traffic load,climate etc. • use neoclassical production and cost function analysis • are based on observed spending for road maintenance/renewal • MC estimates based on real expenditures, might be underestimated • Problems to include more than one traffic variable

6. MC estimation for road - Methodologies Examples: 1. Log-linear single equation models • Sedlacek et al. 2002: Austrian roads • Schreyer et al. 2002: Swiss roads • Bak et al. 2006: Polish roads 2. Translog single equation models • Link 2002: German motorways • Haraldsson 2006: Swedish roads (reduced TL) 3. Translog multi-equation models • Link 2006: German motorways

7. Overview cost function studies - road

8. AT –maint.+renewal CH – constr. maint. D – renewals (Link 2006) D – renewals (Link 2002) MC functions – cost function approach

9. SE – operation (Haraldsson 2006) SE – maint. (Haraldsson 2006) PL – renewals (Bak et al. 06) PL – renewals + maint. (Bak et al. 06) MC functions – cost function approach

10. Duration approach - MC studies

11. a)... with condition-responsive renewal strategy (Lindberg 2002) b)... with observed renewal intervals (Haraldsson 2006) • findings: • decreasing MC curve • very low cost elasticity (- 0.039) • findings: • increasing MC curve • cost elasticity 0.8 Duration approach - MC studies

12. Findings from MC studies – before CATRIN • All MC studies derive non-linear curves • Rather weak non-linearities  might allow MC=VC • Mean of cost elasticity ε = MC/AC generally below 1 4. εrenewals > εmaint > εoperation 5. Road operation seems to be a fixed cost activity 6. Diverging results for shape of MC curves • Most studies: decreasing MC curves • increasing curves for D, AT, S

13. FAC studies road - Characteristics

14. Road – Cost variability in FAC studies

15. Allocation factors FAC studies - road

16. MC estimation for rail - Methodologies

17. Weath and Smith, Model VI, UK Weath and Smith, Model IV, UK Booz Allen Hamilton, UK Andersson, SE Marti / Neuenschwander, Model I, CH Marti / Neuenschwander, Model II, CH ... Tervonen and Idstrom, SF Munduch et al., AT Gaudry and Quinet, FR 0 0.2 0.4 0.6 0.8 1 Proportion of Maint. Cost considered in the study Reported Total Usage Elasticity (Average) Scaled Elasticity Cost elasticities Rail Infrastructure - Maintenance only

18. Andersson, SE Marti / Neuenschwander, CH ... Tervonen and Idstrom, SF 0 0.2 0.4 0.6 0.8 1 Proportion of Maint. Cost considered in the study Reported Total Usage Elasticity (Average) Scaled Elasticity Cost elasticities Rail Infrastructure - Maintenance + Renewals

19. Curve Falling Falling Falling, than increasing Not tested Not tested Falling Falling Not tested Not tested Increasing Not tested Andersson, SE Weath and Smith, Model IV, UK Weath and Smith, Model VI, UK Marti / Neuenschwander, Model I, CH Marti / Neuenschwander, Model II, CH Johannson and Nilsson, SE Johannson and Nilsson, SF ... Tervonen and Idstrom, SF Munduch et al., AT Gaudry and Quinet, FR Booz Allen Hamilton, UK 0 0.5 1 1.5 2 EUR / 1000 gross tonne-km Usage Elasticity Average MC MC estimates rail - Maintenance only

20. Curve Falling Not tested Not tested Not tested Booz Allen Hamilton, UK ... Tervonen and Idstrom, SF Marti / Neuenschwander, CH Andersson, SE 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Usage Elasticity Average MC EUR / 1000 gross tonne-km MC estimates rail - Maintenance and renewals

21. Rail Cost variability estimates for the UK (in use 2005)

22. Rail Cost variability estimates for the UK (in use 2005)

23. MC estimation for aviation - Methodologies • Mostly econometric cost function studies • Motivated by deregulation issues rather than MC estimation • Functional forms: Cobb Douglas, translog, multivariate time series approach • MC estimates hardly comparable due to: a) different output measures (WLU, ATM, PAX) b) different cost categories considered

24. Cost shares in the FAC study for US airports

25. Fixed/variable costs inland waterways NL (CE 2004)

26. Starting point at the beginning of CATRIN • Evidence on cost variability and cost elasticity • No convergence on shape of MC curve • MC estimates need to be disaggregated by vehicle types • Comparability problems due to different cost categories, output measures, methodologies • Huge efforts of researchers to collect and compile data!