Evaluating Equity Issues for Managed Lanes: Methods for Analysis and Empirical Results

Abstract

Transportation planning decisions can have significant and diverse equity impacts (Litman, 2002). In particular, congestion and road pricing have raised equity concerns. Notably, the toll imposed on Managed Lanes on US highways affects drivers’ income. This is especially true for low-earning individuals, who devote a large portion of their available budget to transportation. Therefore, any policy or project assessment should take into consideration the so-called Income Effect. This concept refers to the fact that the impact of a change in driving cost – for instance, a toll increase – is not constant for all individuals but depends on their own income level. Unfortunately, the two measures most commonly used in project evaluation practice, Rule of a Half (RoH) and Log-sum (LS), rely on the assumption of absence of Income Effect. Since microeconomic theory does not support these grounds, not to account for income effect in policy evaluation may produce inaccurate results. Applying a policy for which the economic impact is not well-assessed may lead to severe equity issues. This project proposes a methodology that accounts for income effect in the appraisal of Managed Lanes and calculates the errors due to the use of approximated methods. In particular, the analysis is based on three pillars: i) the use of real data, ii) the use of more realistic assumptions about drivers’ behavior, considering different income levels and correlations between the alternatives, and iii) comparison of the LS and RoH and LS to the Compensating Variation (CV), the true benefit measure derived from microeconomic theory. These improvements provide a refined tool for the appraisal of the social, economic and equity aspects of transportation policy in the context of Managed Lanes. The tool will benefit private entities involved in road pricing projects, and transportation public agencies in need of ameliorating their evaluation of equity issues.