A Cost Function Approach for Measuring the Marginal Cost of Road Maintenance

Heike Link

Journal of Transport Economics and Policy, 2014, vol. 48, issue 1, 15-33

Abstract: This paper analyses the relationship between traffic volume and maintenance costs, and derives estimates for the cost elasticity and the marginal maintenance cost for pricing decisions. Two types of multi-output cost functions were estimated: a translog form and a hybrid form with output variables transformed by Box-Cox metrics. The hybrid model performs statistically better and is the preferable model for the application in this paper. Both approaches derive a decreasing cost elasticity curve and marginal cost curve. The paper also provides evidence for low-factor substitutability, price-inelastic factor demands, and constant returns to scale in the process of maintaining roads. © 2014 LSE and the University of Bath

Date: 2014
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