Estimating the Marginal Costs of Road Renewals: Evidence from a Duration Approach

Abstract

Within an analytical approach that mirrors the relationship between road deterioration, traffic load, and road renewal, we estimate the marginal costs of road renewals as part of a social marginal cost scheme for road charging. Based on a comprehensive data set for German motor ways, we estimate a Weibull dura tion model with shared frailties that account for unobserved heterogeneity, including covariates such as traffic load and various controlvariables. Our results under line the importance of accounting for unobserved heterogeneity due to significant changes in the parameters of interest. We find a deterioration elasticity below one, implying that Newbery's fundamental theorem (Newbery, 1985) does not hold for German motor ways. The marginal cost makes up approximately 55 per cent of the average renewal cost.