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A Cost Function Approach for Measuring the Marginal Cost of Road Maintenance

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  • Heike Link

Abstract

This paper analyses the relationship between traffic volume and maintenance costs, and derives estimates for the cost elasticity and the marginal maintenance cost for pricing decisions. Two types of multi-output cost functions were estimated: a translog form and a hybrid form with output variables transformed by Box-Cox metrics. The hybrid model performs statistically better and is the preferable model for the application in this paper. Both approaches derive a decreasing cost elasticity curve and marginal cost curve. The paper also provides evidence for low-factor substitutability, price-inelastic factor demands, and constant returns to scale in the process of maintaining roads. © 2014 LSE and the University of Bath

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  • Heike Link, 2014. "A Cost Function Approach for Measuring the Marginal Cost of Road Maintenance," Journal of Transport Economics and Policy, University of Bath, vol. 48(1), pages 15-33, January.
    • Handle: RePEc:tpe:jtecpo:v:48:y:2014:i:1:p:15-33
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    Cited by:

    1. Andrew S. J. Smith & Jan-Eric Nilsson & Ivan Ridderstedt & Oskar Johansson, 2023. "Efficiency measurement in the tendering of road surface renewal contracts," Journal of Productivity Analysis, Springer, vol. 60(2), pages 189-202, October.
    2. Cathrine Ulla Jensen & Toke Emil Panduro, 2016. "PanJen: A test for functional form with continuous variables," IFRO Working Paper 2016/08, University of Copenhagen, Department of Food and Resource Economics.
    3. Phill Wheat & Alexander D. Stead & William H. Greene, 2019. "Robust stochastic frontier analysis: a Student’s t-half normal model with application to highway maintenance costs in England," Journal of Productivity Analysis, Springer, vol. 51(1), pages 21-38, February.
    4. Yarmukhamedov, Sherzod & Smith, Andrew S.J. & Thiebaud, Jean-Christophe, 2020. "Competitive tendering, ownership and cost efficiency in road maintenance services in Sweden: A panel data analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 136(C), pages 194-204.
    5. Wheat, Phill, 2017. "Scale, quality and efficiency in road maintenance: Evidence for English local authorities," Transport Policy, Elsevier, vol. 59(C), pages 46-53.

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