Nova workboard

a blog from young economists at Nova SBE

Cost of Traffic Jams

Idling on the motorways for hours to get to work or start the holidays creates more than an emotion of anger and frustration. The causes are well understood: Accidents, traffic peak hours or poor infrastructure are some reasons why drivers waste hours twiddling their thumbs in traffic. But what are the exact costs and the impact of it? The Centre of Economics and Business Research (CEBR), a London-based consultancy, and INRIX, a traffic-data firm, defined the costs and measured the impact on economies and households. Their outcome clearly shows that traffic congestion is not only nerve-racking, but is ‘a significant drain on our wallets as well our economies’.

According to the report of CEBR and INRIX, the total costs of traffic congestion are divided into direct and indirect costs. Direct costs are measured by the fuel and time wasted and indirect costs relate to higher transport and freight costs and business fees produced by traffic jam inefficiencies. Higher indirect costs cause an increase in prices of goods and services that result in a reduction of quantities of goods and services purchased by households. The overall consumer welfare may thereby face a loss.

The report states that the costs of congestion totaled $200 billion (0.8% of GDP) across the four national economies in the U.S., UK, France and Germany in 2013. It is expected to increase to nearly $300 billion by 2030 as a result of an increase in GDP per capita and in urbanization. While the overall economic impact is the greatest in the U.S., the forecast shows the biggest rise in congestion costs is being faced by the UK with 66%. As the British population will grow, the absolute number of cars is also expected to increase. Today drivers on British roads are already wasting 91 hours a year being stuck. This will rise up to approximately 144 hours, including motorists in London spending up to 40 working days a year in stationary traffic. By 2030 British families are expected to pay an extra €2,500 a year and businesses are expected to face an extra €380 billion over the next 16 years as a result of delays, inefficiency and time wasting.

For the growth of economies and households’ budgets it is essential to solve inefficient congestion. As road expansion only encourages more cars being on the roads, according to Dominic Jordan, INRIX’s chief data scientist, smart road networks might be one possible solution. British projects like ‘smart motorways’ that try to smooth traffic by constantly varying speed limits or the number of lanes used is not only cheaper than building new roads, it is also a starting point that must become the norm. Motorists will then be able to ‘avoid the busiest places at the busiest times’ and the ‘dreadful toll that roads take in human lives should start falling’.

Therefore, governments will need to approach this problem efficiently in order to not being shocked by the worsening impact on the economy and the household’s budget by 2030. They not only need to support the existing trend of sharing cars via different car sharing providers, for instance DriveNow or Car2Go, but also have to find new solutions for a better, modern infrastructure.

Julia Fuechsl #724

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Author: studentnovasbe

Master student in Nova Sbe

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