Question

The Federal Highway Administration predicts that Americans spend 8.1 billion hours per year in traffic jams. Most traffic experts believe that adding and enlarging highway systems will not alleviate the problem. As a result, current research on traffic management is focusing on three areas: (1) the development of computerized dashboard navigational systems; (2) the development of roadside sensors and signals that monitor and help manage the flow of traffic; and (3) the development of automated steering and speed controls that might allow cars to drive themselves on certain stretches of highway.

In Los Angeles, perhaps the most traffic congested city in the United States, a Texas Transportation Institute study found that traffic delays cost motorists $8 billion per year. But Los Angeles has already implemented a system of computerized traffic-signal controls that by some estimates has reduced travel time by 13.2%, fuel consumption by 12.5%, and pollution by 10%. And between Santa Monica and downtown Los Angeles, testing of an electronic traffic and navigational system including highway sensors and cars with computerized dashboard maps is being sponsored by federal, state, and local governments and General Motors Corporation. This test program costs $40 million and to install it throughout Los Angeles could cost $2 billion.

On a national scale, the estimates for implementing “smart” roads and vehicles are even more staggering: it would cost $18 billion to build the highways, $4 billion per year to maintain and operate them, $1 billion for research and development of driver information aids, and $2.5 billion for vehicle-control devices. Advocates say the rewards far outweigh the costs.

a) On a national scale, how would you identify the users’ benefits and disbenefits for this type of public project?

b) On a national scale, what would be the sponsor’s cost?

c) Suppose that the users’ net benefits grow at 3% per year and the sponsor’s cost grow at 4% per year. Assuming a social discount rate of 10%, what would be the B/C ratio over a 20-year study period?

Answer 1