Measuring Livability in Transportation Infrastructure Investments

Secretary of Transportation Ray LaHood announced “one of my highest priorities is to help promote more livable communities through sustainable surface transportation programs.” 1 This paper presents a framework for further research into measuring livability imbedded in transportation infrastructure investments. Traditional benefit-cost methodologies have difficulty estimating values for goods that are not exchanged in the market. This shortfall of standard benefit-cost analysis is problematic for transportation infrastructure investment choices since there are impacts beyond the measurable aspects of travel time, emissions, operating costs, and construction.2 The impacts of transportation infrastructure investments on the community livability have been highlighted by the Obama administration. This paper will focus on a potential method to integrate into benefit-cost analysis the concepts of neighborhood livability issues including noise, walking environment, land use, an area‟s “sense of community” and other difficult to measure aspects to transportation choices. This paper will make the case that blending experimental economics with experimental economics and contingent valuation provides a way forward to measure the impacts of transportation externalities. The paper will discuss the alternative method to measure the nonmarket components of transportation investment. This is method utilizes regression techniques with hedonic pricing methods. Hedonic prices relies on real estate prices to disentangle the value of local non-priced attributes (open space, mobility, noise, air quality etc.) from other real estate attributes (i.e. square feet, bathrooms, etc.) that make up the price of real estate. This methodology has some econometrical downfalls but also has a practical problem with the timing. Many eggs get thrown at economists since most models are tailored to understand the past. Forecasting presents unique and difficult challenges (just ask an Wall Street Economist these days). Hedonic prices fall into this group. With careful modeling results are available but only on real estate prices where the change has already occurred. In other words this analysis is retrospective - only available after transportation infrastructure is completed. In addition, since each major transportation infrastructure investment is unique research in one geographic location is often not transferable to another location. This paper will focus on laboratory experimental economics where participants area provided with very controlled surveys - imbedding payoff and cost structures into the survey. These survey‟s are often called „games‟ since participants „play‟ the experiment subject to predetermined requirements. Experimental economics provides the structure necessary to telescope time and test the sensitivity of the commodity values for different quantities. The use of surveys to estimate nonmarket prices is called contingent valuation. Contingent valuation researched in relationship to environmental aspects but this paper proposes that the analysis be expanded to generate livability measures. This paper is organized around the discussion of economic modeling concepts for public goods, hedonic prices, contingent valuation and experimental economics. Using the discussion of these tools the paper will conclude with a discussion how these tools can be used to help measure the livability of alternative transportation infrastructure investments.