Traffic congestion’s economic costs

By Staff | July 11, 2013 | Last updated on July 11, 2013
2 min read

The true costs of congestion in Canada’s cities are higher than previously estimated, according to a report by the C.D. Howe Institute.

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In “Cars, Congestion and Costs: A New Approach to Evaluating Government Infrastructure Investment,” author Benjamin Dachis says there are social and economic costs to congestion that governments should take into account when investing in infrastructure, beyond the cost of time lost in traffic.

“When congestion makes people choose to stay at home rather than travel, all sorts of activities are curtailed, resulting in a quantifiable loss to the economy,” commented Dachis. “These losses should be included in the costs of congestion and, in turn, estimates of the benefits of new infrastructure investment.”

For the Greater Toronto and Hamilton Area, Dachis estimates the additional costs of congestion, beyond time lost to traffic, range from at least $1.5 billion to as much as $5 billion per year.

The report points out that existing studies ignore the positive effects of relationships among firms and people that are among the main benefits of urban living. These urban agglomeration benefits range from people accessing jobs that better match their skills, sharing knowledge face-to-face, and creating demand for more business, entertainment and cultural opportunities which, in turn, benefits other people. “When congestion makes urban interactions too costly to pursue, these benefits are foregone, adding significantly to the net costs of congestion,” said Dachis.

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In general, the social returns from infrastructure can be substantial, said Dachis. Governments are missing a large portion of the economic benefits of infrastructure when they do not estimate them. In particular, economic externalities — which arise when an individual’s use of infrastructure affects someone else — can be quite large. “Governments should assess the full range of social costs and benefits of externalities and include them in building a consistent economic case for investment,” said the author.

This report offers a decision-making framework for governments seeking to include these broader, social welfare costs in selecting which infrastructure investments merit scarce public funds — ranging from transportation infrastructure to flood protection to social infrastructure — and which investments should be handled by the private sector.

Click here the full report.

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The staff of have been covering news for financial advisors since 1998.