Optimizing Road Capacity and Type

We extend the traditional road investment model, with its focus on capacity and congestion as measures of capital and its utilization, to include free-flow speed as another dimension of capital. This has practical importance because one can view free-flow speed as a continuous proxy for road type (e.g. freeway, arterial, urban street). We derive conditions for optimal investment in capacity and free-flow speed, and analyze the optimal balance between the two. We then estimate cost functions for capital and user costs and apply the resulting model using parameters representing large US urban areas. We show that providing high free-flow speed may be quite expensive, and there is sometimes a tradeoff between it and capacity. We find suggestive evidence that representative freeways in most large urban areas provide too high a free-flow speed relative to capacity, thus making the case for reexamination of typical design practice.