Joint OECD/ITF Round Table“Competitive interaction between airports, airlines
and rail services ”
P i 2Paris,2-33 OctoberO t b 2008

The Economic effects of High
High-Speed
Speed Rail Investment
Ginés de Rus
Department
Dtt off Applied
A li d E
Economicsi
University of Las Palmas, Spain

1Outline The objective of HSR investment
 Costs and benefits of the HSR
 Basic model for the economic evaluation of HSR
 Intermodal effects
 Conclusions

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High Speed RailThe proposals of the European Commission for theTrans European Transport Network envisage
expenditure of 600b euros
euros, of which 250b euros is forpriority projects, and a large part of this expenditure isfor high speed rail.

HSR investment is seen as a second best policy withthe aim of changing modal split.

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CBA of HSR
COSTS
Infrastructure
New rolling stock
Maintenance of infrastructure
Maintenance of rolling stockOperating costs
Externalities
E tlitiLand takeVisual intrusion
NoiseBENEFITS
Time savings
Intermodal effects
Time savings (road, air,conventional train)
Externalities
Cost savings
g in alternativesmodesReliability and reduction ofovercrowding
Reduction in accidents

Air pollution

Generated demandGlobal warmingWider economic benefits
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High Speed RailTo enumerate the list of the social benefits generated by the HSR,
even if some number are associated to the description is as
irrelevant as to show how expensive is the new technology.

In economic terms, the net balance is what really matters, and thisnet result cannot be obtained without due consideration of the casebase, compared with different `projects´ available for the solution ofthe `transport problem´ under evaluation.

HSR is one alternative whose net benefit has to be compared withthose resulting from other actions as the construction or upgradingof a conventional railway line, the construction of new airports orroad capacity, or the introduction of congestion pricing, alone or
combinedbi d withi h diffdifferent iinvestment plans.
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HSR as an improvement of railway transportT∫ B ( H )e0− ( r − g )t

TTd > I + ∫ C f e dt
dt
d + ∫ Cq (Q)e− ( r − g )t dt
d0− rt0where:
B(H): annual social benefits of the project.
Cf: annual fixed maintenance and operating cost
cost.
Cq(Q): annual maintenance and operating cost depending on Q.
Q: passenger-trips.
I: investment costs.
T: project life.
r: social discount rate.
g: annual growth of benefits and costs which depends on the level of real wages and Q.
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HSR as an improvement of railway transportT∫ B ( H )e0− ( r − g )tT

dt = ∫ [v(τ − τ )Q 0 + CC ](1 + α )e01− ( r − g )t0NTi =10dt + ∑ ∫ δ i (q1i − q i0 )e − ( r − g )t dt

where:
v: average value of time (including differences in service quality).
τ 0 : average user time per trip without the project.
τ 1 : average user time per trip with the projectproject.
Q0: first year diverted demand to HSR.
CC: annual variable cost of the conventional mode.
α : proportion of generated passengers with the project with respect to Q0.
δ i : distorsion in market i.

qi0 : equilibrium demand in market i without the project.
q1i : equilibrium
qdemand in market i with the pproject.
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Optimal timing
BT +1 − CT +1 B1 − C1 + CC1rI+>
T +1
1 + r (1 + r )1+ r

B1 > rI + C1 − CC18

Intermodal effects: two types
yp

Direct effects.

I di t effects.
Indirectff t

9HSR market share and railwayy speed
p300

Madrid-Barcelona
250
Tokyo-Osaka

Paris-Lyon

Paris-Brussels

200

Speed

Paris-London

Madrid-Seville

Stockholm-Gotteborg
150

Rome-Bologna

Rome-Milan
Paris-Amsterdam

100

5000102030405060

708090100

HSR market share (%)
10Intermodal direct effects

The high market share of railways in medium distance corridors has
been an argument in favour of investing in the HSR technology.

If passengers
gfreelyy decide to shift from air to rail it follows that theyy
are better off with the change.

The problem is that a passenger decides to move from air to rail
because his generalized cost of travel is lower in the newalternative but this is not a guarantee that society benefits with thechange.

11Intermodal direct effects
The intermodal effects measured in the primary market consist of
the product of the value of timetime, the average time savings and thenumber of passengers shifting from the conventional mode to thenew transport alternative.

These average values hide useful information regarding user
behaviour and the understanding of intermodal competition:


Savings from access, egress and waiting time have morevalue than savings `in vehicle time´.

Time saving benefits form deviated traffic (road and air).

12Effects on secondary markets:
Intermodal indirect effectsN

10− ( r − g )t
δ
(q−q)
edt
∑∫ ii=1T0iiΔp H − ( r − g ) t∫0 ( pA − cmA )qAε AH pH e dt
T13

Conclusions
High speed rail infrastructure is considered more efficient and lessenvironmentally damaging that air or road transport.

The truth in both arguments rests heavily on the volume of demandof the affected corridors and several key local conditions, as thedegree of airport or road congestion, the existing capacity in theconventional rail network, values of time, travel distance,
construction costs, or the source of electricity generation and theproportion of urban areas crossed by the trains.

14ConclusionsHSR investment may be adequate for some corridors, with capacity
problems in their railway networks or with road and airport
congestion, but its value heavily depends on the volume of demand
to be attended.

Moreover, even in the case of particularly favourable conditions,
HSR investment projects have to be compared with other `dosomething´ alternatives (including road or airport pricing and/orinvestment, upgrading of conventional trains, etc.).

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