Transport Economics

Transport economics is a branch of economics that deals with the allocation of resources within the transport sector. It has strong links to civil engineering. Transport economics differs from some other branches of economics in that the assumption of a spaceless, instantaneous economy does not hold. People and goods flow over networks at certain speeds. Demands peak. Advance ticket purchase is often induced by lower fares. The networks themselves may or may not be competitive. A single trip (the final good, in the consumer's eyes) may require the bundling of services provided by several firms, agencies and modes.

Although transport systems follow the same supply and demand theory as other industries, the complications of network effects and choices between dissimilar goods (e.g. car and bus travel) make estimating the demand for transportation facilities difficult. The development of models to estimate the likely choices between the such goods involved in transport decisions (discrete choice models) led to the development of an important branch of econometrics, as well as a Nobel Prize for Daniel McFadden.

In transport, demand can be measured in number of journeys made or in total distance traveled across all journeys (e.g. passenger-kilometers for public transport or vehicle-kilometers of travel (VKT) for private transport). Supply is considered to be a measure of capacity. The price of the good (travel) is measured using the generalized cost of travel, which includes both money and time expenditure.

The effect of increases in supply (i.e. capacity) are of particular interest in transport economics (see induced demand), as the potential environmental consequences are significant (see externalities below).