DCA – The economics of cycling

DCA Blog by Erik Verhoef, professor in Spatial Economics at VU Amsterdam

Transportation has always been a great source of inspiration for economists. Already in the nineteenth century, Dupuit used the example of a bridge to develop the notion of consumer surplus and talk about optimal pricing (free!) of uncongested infrastructure. In the 1920’s, Pigou used the example of a congested road to develop his theory of optimal corrective pricing when market prices do not reflect external costs such as congestion, safety and environmental pollution. And in the 1970’s, the later Nobel Prize winner McFadden developed the concept of discrete choice models when trying to predict the demand for the Bay Area Rapid Transit system. An interesting question is, therefore, can we expect also cycling to be such a source of inspiration for innovative economic research?

I think the answer is “yes”, even though a Nobel Prize in bike-o-nomics might be just one bridge too far. Cycling raises all sorts of questions that are not just relevant for the practice of policy making, including making decisions on where to invest in infrastructure building and maintenance, but also offer intriguing questions for the economist.

Just one example is how to deal with the value of time, usually one of the key components in cost-benefit analyses of transport policies. A pioneering study on the value of time in cycling is the one by Börjesson and Eliasson (2012).

Whereas for most transport modes time spent travelling is considered a societal loss – even when the losses are reduced by using the time on board more effectively through new ICT technologies – for cycling there are often positive aspects of travel time. One is the pure pleasure that many cyclists experience from the activity. A second is the health benefits that cyclists may anticipate and take into account. And a third are the advantages for others – not in the least place because of collective health insurances – of improved health of cyclists. It is clear that these are real economic benefits, and the size of the effects may be substantial. But it is also clear that we are still pretty far from having appropriate and reliable value of time estimates for cycling, not just the direct value, but also these harder-to-assess wider societal values. New (big) data on cycling will be really helpful to try and assess such values. It seems safe to predict that we will see an upsurge in economic research on cycling in the years to come, and this value of time will be just one of many questions where we can expect exciting and societally meaningful research.

Reference:

Börjesson, M., Eliasson, J. (2012) The value of time and external benefits in bicycle appraisal. Transp. Res. Part A 46, 673-683.