Industrial and Financial Economics Master Thesis No 2003:37 EVALUATION OF DEMAND FOR INTERDEPENDENT INFRASTRUCTURE INVESTMENTS - THE CASE OF THE GÖTA ÄLV VALLEY Anneli Axsäter & Anna Boström Graduate Business School School of Economics and Commercial Law Göteborg University ISSN 1403-851X Printed by Elanders Novum ABSTRACT Our thesis aimed to describe the demand for transportation between Göteborg and Trollhättan in such a way that it could be used for decision making. Furthermore, we aimed to draw parallels between Norge/Vänernbanan and Svealandsbanan. Finally, we wanted to decide if investments should be made in R45, in Norge/Vänernbanan, or in both. A survey among commuters in the area between Göteborg and Trollhättan was performed and company interviews with companies in the municipalities of Göteborg, Ale, Lilla Edet, and Trollhättan were conducted. Furthermore, we explained how scenario analysis can be applied within the field of transportation when determining how an increased capacity affects the demand for transportation and how the demand affects the payoff of infrastructure investments. From our survey and interviews, we can conclude that transfer effects may be realized if investments in R45 and in Norge/Vänernbanan are made. Companies in the area demand infrastructure investments because of recruiting and commuting problems. We suggest expanding R45 into four lanes with a railing in the middle and intersections below or above the road, to increase the bus frequency, and to investigate whether it is possible to increase the train frequency and/or investing in high-speed trains while keeping the current track capacity. Key Words: Infrastructure investment, elasticity, cross elasticity, transfer effect, “generalized cost”, consumer surplus, transport modeling, Limdep, Sampers, nettonuvärdeskvot, multinomial logit model. ACKNOWLEDGEMENTS The completion of this thesis has been possible through the assistance of a number of people. First of all, we would like to thank Professor Göran Bergendahl, who has been very supportive and encouraging throughout this period of thesis writing. He has provided us with valuable insights within the field of transportation and has pushed us in the right direction through a lot of knowledge within the area and also through his creative ideas. Bengt Wennerberg at Business Region Göteborg is to be thanked for raising our interest in infrastructure investments and for introducing us to infrastructure investments in R45 and Norge/Vänernbanan. Our survey would not have been possible without advice and help from Fredrik Carlsson, a doctoral student at the Department of Economics at the School of Economics and Commercial Law, Göteborg University, Karl. O. Olsson, a doctoral student at the Department of Business Administration at the School of Economics and Commercial Law, Göteborg University, the traffic police in Västragötalandsregionen, and all car, train, and bus commuters who responded to our questionnaire. Fredrik Carlsson introduced us to the software program Limdep and gave us valuable advice when constructing our questionnaire. Karl O. Olsson gave us suggestions for relevant literature within the area. The help from the traffic police was tremendously important to us since, through their help, we were able to distribute our questionnaire to car commuters on R45. Furthermore, we greatly appreciate the policemen’s positive attitude when helping us. The time and effort that car, train, and bus commuters put into our questionnaire while filling it out resulted in an interesting analysis, which could not have been completed without their assistance. We also would like to thank the representatives at AB Volvo, Eka Chemicals AB, SAAB, SCA, SKF, Volvo Aero, and Volvo Car Corporation for taking their time to answer our questions. Lastly, we take this opportunity to thank Helena Braun at SIKA and Tomas Hultgren at Västsvenska Industri- och Handelskammaren who both showed a great interest in and enthusiasm over our findings. Göteborg, December 2003 Anneli Axsäter & Anna Boström TABLE OF CONTENTS 1 BACKGROUND .................................................................................... - 1 - 1.1 Infrastructure Investments and Users’ Benefits .........................................................- 1 - 1.1.1 Introduction..................................................................................................................................- 1 - 1.1.2 Infrastructure Investments and Region Enlargement..................................................................- 3 - 1.2 Demand for Transports.................................................................................................- 5 - 1.2.1 Relationship between “Generalized Cost” and Consumer Surplus............................................- 7 - 1.3 R45 and Norge/Vänernbanan .......................................................................................- 9 - 1.3.1 The Göta Älv Valley....................................................................................................................- 9 - 1.3.2 Characteristics of R45 and of Norge/Vänernbanan ..................................................................- 10 - 2 PROBLEM DISCUSSION.................................................................. - 13 - 2.1 Purpose .........................................................................................................................- 17 - 3 METHODOLOGY............................................................................... - 19 - 3.1 Working Process ..........................................................................................................- 19 - 3.2 Quantitative Approach................................................................................................- 20 - 3.2.1 Travel Demand Models .............................................................................................................- 20 - 3.2.2 Usage of Multinomial Logit Model in Survey Analysis...........................................................- 25 - 3.2.3 Survey Sample ...........................................................................................................................- 26 - 3.2.4 Choice of Survey Method..........................................................................................................- 27 - 3.2.5 Stated Preference Experiment ...................................................................................................- 29 - 3.2.6 Development of the Questionnaire............................................................................................- 33 - 3.2.7 Data collected through Survey ..................................................................................................- 34 - 3.2.8 Sources of Errors when collecting Data for a Stated Preference Experiment..........................- 36 - 3.2.9 Choice of Variables in Limdep and their Significance.............................................................- 38 - 3.2.10 Descriptive Statistical Approach ..........................................................................................- 41 - 3.2.11 Additional Approach.............................................................................................................- 41 - 3.3 Qualitative Approach ..................................................................................................- 41 - 3.3.1 Interview Sample.......................................................................................................................- 41 - 3.3.2 Interview Guide .........................................................................................................................- 42 - 3.4 Comparative Approach...............................................................................................- 42 - 3.5 Validity and Reliability of Our Survey and Interviews............................................- 43 - 3.5.1 Validity ...................................................................................................................................... - 43 - 3.5.2 Reliability .................................................................................................................................. - 44 - 4 SURVEY AND INTERVIEW RESULTS..........................................- 47 - 4.1 Results from Survey.....................................................................................................- 47 - 4.1.1 Results from Descriptive Statistical Approach......................................................................... - 47 - 4.1.2 Results from Multinomial Logit Model.................................................................................... - 58 - 4.2 Interview Results..........................................................................................................- 60 - 5 EVOLUTION OF DEMAND FOR TRANSPORTATION BETWEEN GÖTEBORG AND TROLLHÄTTAN .....................................................- 65 - 5.1 Current Demand Forecasting Model: Sampers ........................................................- 65 - 5.1.1 The Nested Logit Model and Potential Weaknesses ................................................................ - 66 - 5.2 Elasticities obtained through Multinomial Logit Model ..........................................- 69 - 5.3 Effects on Demand of Changes in Traveling Time ...................................................- 70 - 5.3.1 Elasticity among Car Commuters ............................................................................................