I recently discussed this scenario in one of my classes. Given the significant interest the topic generated, it seems timely to dust off this old blog and provide an economic overview of the subject for the few nerds like me out there that like this kind of stuff, but more over and especially to counter the common rhetoric that expansions of bus or bike lanes are purely ideological.
To effectively analyze the problem, let's abstract from reality and simplify the scenario into a more manageable framework.
Establishing Capacity and the Club Good Framework
Let's begin by looking at a single lane of traffic. Based on data from the Highway Capacity Manual, a single lane is estimated to move between 1,500 and 2,000 People Per Hour (PPH). For our analysis, we will use the midpoint: 1,750 PPH.
Note: As the proportion of large SUVs, trucks, or commercial vehicles increases, the PPH capacity would be expected to fall. We will, however, presume the 1,750 PPH average works for our purposes.
The defining characteristics of a club good are that it is Non-Rivalrous (up to a certain capacity) and Excludable (whether it is excluded is a policy choice).
Non-Rivalrous (up to capacity): A rival good, like a cookie, is consumed solely by one person and thus only that person gets the benefit from the consumption. A non-rivalrous good, like a swimming pool, can be used simultaneously enjoyed by many people. Up to capacity, adding one more person does not diminish the benefit for others. Once the capacity is exceeded, the good becomes congested, and adding the last person begins to reduce the benefit for everyone, at that point, it becomes rivalrous, adding an external cost onto the society of people trying to use it.
Excludable: This refers to the ease with which access can be restricted to those who pay. Like a cookie or a swimming pool, a road is excludable. However unlike a cookie or a swimming pool, we choose not to charge for road access. But It is entirely feasible to implement road tolls and collect a user fee; the fact that we don't is purely a policy choice.
The Efficient and Inefficient Outcomes
Given a downward-sloping demand (Marginal Benefit) curve, with a price of zero, the quantity demanded occurs where the curve intersects the horizontal axis. For our example, let's arbitrarily set this quantity demanded at 1,500 PPH.
But what happens when demand begins to exceed the road's capacity? This could be due to rising population, or simply the surge of rush hour demand.:
This surge in demand to 2,000 PPH at a price of zero pushes us beyond the 1,750 PPH capacity. The excess 250 PPH attempting to use the road creates congestion, which adds external costs to the rest of society. These costs manifest as:
Increased Commute Time: (Time is money).
Increased Accidents: Leading to higher insurance premiums for all motorists.
The result is that more people choose to drive than the roadway can handle, creating negative, harmful costs that are generally paid by all of us.
The Solutions: A Comparative Analysis
While there are many potential solutions, we will evaluate four options for their economic efficiency and effectiveness in the context of our 2,000 PPH rush hour demand:
A market-based solution.
Adding another general-purpose vehicle lane.
Adding a dedicated bus lane.
Adding a dedicated bike lane.
Market Based Solution
The most economically sound, market-based solution is congestion pricing. The government imposes a variable toll system based on the Marginal External Cost (MEC). As the number of drivers exceeds capacity, incurring an external cost on society, the toll increases to explicitly charge users for the costs they impose on others. When traffic is below congestion, the toll is zero.
Benefits:
Internalizes External Costs: It charges the users causing the problem, whose funds can then be used to pay for alternatives.
Incentivizes Behavior Change: Users now face an economic incentive. Some will shift to non-peak travel times or alternative modes of transportation, freeing up the road for those who cannot easily transition.
The Political Hurdle: This is often the most vehemently opposed solution, even by those who champion market forces. Why? People naturally resist paying for something that was previously free (a key parallel is the carbon tax, which charges for the external cost of pollution choices). Furthermore, this solution does not necessarily eliminate congestion; it only reduces congestion while also generating funds by charging the users who had created the costs to offset the external costs that would otherwise be paid through other means (e.g., increased insurance and general taxation).
Adding another lane
For simplicity, let's assume the government already owns the right-of-way and can expand the roadway without acquiring extra land.
The common expectation is that two lanes equal 3,500 PPH capacity (1,750 x 2). However, the Law of Diminishing Returns applies. The second lane will have lower capacity due to the friction created by lane changes and merging, etc. Let's suppose the additional lane adds 1,250 PPH, bringing the total capacity up to 3,000 PPH.
Our current 2,000 PPH rush hour demand is now well below capacity. Ignoring the well-studied phenomenon of induced demand (where new capacity incentivizes people who previously avoided traffic to now drive, leading to a concurrent surge in demand), this simplistically solves the congestion problem.
The Cost:
A conservative estimate for building and maintaining a (3.5m x 1m) section of roadway over its 25-year lifespan is approximately $2,000 per meter. To pay for this extra lane, we need to raise $2,000 per meter through general taxation.
Taxation Implication: Since this solution does not include a toll, the funds must be raised through general taxation, taxing everyone regardless of whether they drive on this road.
(A note on the "Gas Tax": These funds are not dedicated solely to roads, and even if they were, they are estimated to cover only about 60% of the cost, covering only the maintenance of existing roads not expansion, leaving the expansion for the general taxpayer to cover.)
Cost per Person/Capacity:
Total Cost per Current Capacity: $2,000 / 2,000 PPH = $1 PPH (per meter)
Total Cost per Future Capacity: $2,000 / 3,000 PPH = $0.67 PPH (per meter)
Adding a Bus Lane
This is similar to the ongoing construction on the Trans-Canada Highway between the Westshore and Victoria core. We will assume it has the same paving cost per meter as a vehicle lane: $2,000.
The Capacity Difference:
A dedicated bus lane has an estimated capacity of 6,000 - 8,000 PPH, for an average of 7,000 PPH.
For the same cost as adding a vehicle lane, we increase the highway's total PPH capacity from 1,750 to 8,750.
Our 2,000 PPH demand now uses only 23% of the total network capacity, providing significant excess capacity for future growth.
Impact on Congestion:
To bring the existing vehicle lane (1,750 PPH) back down to capacity, only 250 of the 2,000 current drivers need to switch to the bus (12.5% of peak demand).
Why does the bus lane look empty? Let's assume 500 PPH switch to the bus.
The driving lane drops from 114% capacity (2,000/1,750) to 86% capacity (1,500/1,750), it flows smoothly.
The bus lane operates at only 7% capacity (500/7,000).
The same 500 people who accounted for 28% of the congestion in the driving lane now take up only 7% of the bus lane's capacity. This is a far more efficient and cost-effective way to move people.
Cost per Person/Capacity (Bus Lane):
Total Cost per Current Capacity: $2,000 / 2,000 PPH = $1 PPH (per meter)
Total Cost per Future Capacity: $2000 / 8750 PPH = $0.23 PPH (per meter)
This is approximately 34% of the cost per person/capacity versus adding an additional vehicle lane based on future capacity - again a valid comparison as again it would make the most sense to partly debt finance this so that future beneficiaries also end up bearing some of the cost.
Adding a bike lane
The cost of adding and maintaining a bike lane is typically a fraction of a vehicle lane's cost, partly because it can often be done on an existing shoulder and a single car trip causes vastly more road damage than a single bike trip. (Estimated that you would need over 15,000 bike trips to do same damage as a single average vehicle trip)
To maintain a conservative analysis, let's adjust the cost based on size: a typical bike lane (1.5m x 1m) is 43% the width of a vehicle lane (3.5m x 1m).
Estimated Cost: $2,000 x 0.43 = $860 per meter of bike lane.
The Capacity Difference:
Bike lane capacities are estimated at between 2,500 and 5,500 PPH. We will use the average: 4,000 PPH.
Adding this lane brings the full capacity of the network up to 5,750 PPH (1,750 + 4,000).
Impact on Congestion:
You will hear drivers say: "But I can't bike! I have to carry groceries, ferry my kids to hockey practice, or haul tools to work!"
And that is precisely the point.
The goal is not to force you onto a bike for every trip. The goal is to provide a safe, efficient alternative for the 2,000 PPH creating the congestion. If, for instance, 500 (25%) of trips can be completed by bike for the trip:
(I only chose 500 for an easy round number, and consistency as it was the value I picked for the same reason for the transition to bus)
The driving lane reduces from 114% capacity to 86% capacity (it flows smoothly).
You get to keep your car for those essential trips, like hauling kids and groceries, but you will now encounter significantly less congestion because others have chosen to use the high-capacity alternative.
Meanwhile, once again (given the extreme efficiency of the bike lane) this bike lane will tend to look empty as those 500 people only account for 12.5% capacity (500/4,000)
Cost per Person/Capacity (Bike Lane):
Total Cost per Current Capacity: $860 / 2,000 PPH = $0.43 PPH (per meter)
Total Cost per Future Capacity: $860 / 5,750 PPH = $0.15 PPH (per meter)
Conclusion
The next time you hear someone claiming that building bike or bus lanes is a waste of money or "entirely ideological," consider the economic facts.
Building additional general-purpose vehicle lanes is by far the most expensive and least efficient way to add capacity to the system, resulting in the largest requirement for taxation increases. Conversely, shifting public funds into bus and bike lanes, for a fraction of the cost, provides vastly higher capacity, which saves all taxpayers significant money in the long run. Thus, building bus and bike lanes is not an inefficient, ideological, or wasteful expenditure; it is the most cost-effective, efficient, and fiscally conservative option to increase the operational capacity of the road network.
That being said, we must acknowledge that the Law of Diminishing Returns applies universally. Currently, we have a relative abundance of vehicle travel lanes, which is why an additional vehicle lane results in significantly reduced returns and exorbitant costs per user. As we continue to build out our Bus and Bike infrastructure, the same Law will eventually take hold, resulting in decreasing returns for future projects. However, given the vast difference in current capacity and cost per person, the investment required to reach a point where the cost per user equates across different modes (vehicle, bus, and bike) is immense, making these alternatives the clearly superior investment for the foreseeable future.
What are your thoughts on this? Feel free to comment below.
Postscript: Notes on the Assumptions made
To maintain analytical consistency and simplify our model, the following conservative assumptions were made:
Cost Scaling: The specific base cost chosen, $2,000 per meter of vehicle lane, is ultimately inconsequential to the conclusion. This is because all alternative costs (bus and bike lanes) are calculated as a fixed proportion (a scalar) of this base figure, derived from the relative size and PPH capacity. Therefore, if the $2,000 figure is proven too high or too low, the cost and capacity ratios that drive this analysis will remain the same. The conclusion about the relative efficiency of each mode holds true regardless of the absolute starting cost.
Land Acquisition Costs: We assumed that adding the extra vehicle lane, bus lane, or bike lane did not require the purchase of any additional land. If land acquisition were necessary for the vehicle or bus lanes, those respective costs would increase dramatically, widening the cost differential further. The bike lane, due to its small footprint, is often easier to fit within existing rights-of-way, making this assumption most realistic for that option.
Maintenance Costs: We calculated the cost of the bike lane as 43% of the vehicle lane based solely on its comparative size. This intentionally ignores the maintenance variable. Given that it takes over 15,000 bike trips to cause the road damage equivalent to one average vehicle trip, the expected maintenance costs for the bike lane would be significantly lower than 43%. By scaling costs based only on initial build size, we maintained a conservative, and less "skewed," estimate for the alternatives.
Alternative Modes: For brevity and focus, this analysis was limited to the most common local congestion solutions (market-based, lane expansion, bus lanes, and bike lanes). Other high-capacity options, such as light rail or sky train systems, were excluded to keep the discussion grounded in the current projects being considered in the region.
