An Econometric Analysis of Motorway Renewal Costs in Germany

Abstract

The analysis of motorway renewal costs presented in this paper was driven by two research questions: First, to analyse the economic process of motorway renewal work and to identify whether there exist economies of scale; and second to identify the influence of traffic volume on renewal costs and to derive an estimate of marginal infrastructure costs as part of optimal road user charges. The analysis is based on cross-sectional data for motorway renewal costs and traffic volume in Germany during the period 1980-1999. Two translog models were estimated, each of them including the factor input prices for labour, material and capital, and a set of regional dummy variables as well as dummy variables forthe type of material used for renewal. The first model includes in addition to these variables the sqm of renewed road asexplanatory variable. The second model was constructed to analyse the relationship between traffic volume and renewalcosts and contains the average annual daily traffic volume of trucks and passenger cars as independent variables. Two main results were derived from the models: First, motorway renewal work is characterised by substantial economies of scale. Second, the relationship between renewal costs and traffic volume is expressed by a cost elasticity, i.e., the ratio between marginal and average costs, which ranges from 0.05 up to 1.17 with a digressive increase of marginal costs.