Study Guide Transport Economics and Management

Eric Pels & Vincent van den Berg

Version 20 august 2013

Contents
1 Introduction 2 Objectives and Structure 3 Relation with other courses 4 Admission requirements 5 Advised entry level 6 Outline 7. Paper project 8 Examination 9 Literature 2 2 2 2 3 3 6 7 7

1 Introduction
The transport sector is very important for the Netherlands and the Benelux. In a relatively small area, we find the ports of Rotterdam, Antwerp and Amsterdam. In the same area we have the Amsterdam Airport Schiphol and Brussels Zaventem as main airports. These important international nodes are connected to the hinterland (Germany, France) by an extensive road and rail system and inland waterways. These nodes, and the access and regress modes provide an important contribution to the economy. How are these nodes and transport systems operated? What are the strategies, and how do we set prices?

2 Objectives and structure

By the end of this course, the student can explain recent developments in the transport sector using economic theories. The students will demonstrate this by writing a short report based on the theory and topics determined by the lecturers, and during the final examination (for a more detailed discussion of the topics (per lecture) please see Section 6 outline). In this course, students learn the economic foundations of pricing and network strategies in transport sectors, and the implications for transport policy. In the first part of the course we discuss the microeconomic theory of market structures, pricing, externalities and regulation, with a strong focus on transport markets. Which market structures can we use to describe transport sectors? How does this influence price setting for passenger and freight transport? How do we deal with environmental effects? How effective are government policies in the field of transport? We also discuss the costs of operating transport networks. How can we describe the cost of operating, for example, a rail network or a shipping company? Using regression analysis we illustrate how cost functions can be estimated, and used in policy making. In the second part of the course, students will learn about several transport markets, and how the theories and techniques from the first part apply to these. Covered areas include inland waterways, maritime transport, road transport, and rail transport. In addition, there is the paper project wherein the students write a paper based on their analysis of a dataset on transport that we will provide. The project will be useful practise for your thesis writing, and for when you are doing (numerical) analysis in your (later) job. In the project, it is not only important to learn how to do empirical research, but also to learn how to interpret your results, how to present your results, conclusions and advice, and how to interpret other studies. The project does not cover all topics of the lectures; it is an application to a few of them.

3 Relation with other courses

Some economic concepts are (re)introduced during this course, so there is a connection with (bachelor) courses on economics. Students that will follow airline business or network analysis will find that these courses build on the current course, and in those courses the theoretical concepts studied in this course are applied to specific sectors.

4 Admission requirements
For the master and this course, some background (transport) economic knowledge is required following the textbook:1

See also www.feweb.vu.nl/nl/opleidingen/graduate-school/master-programmes/business-administration-transport-andsupply-chain-management/admission-requirements-and-application/index.asp

Cole, S., 2005. Applied Transport Economics: Policy, management and decision making, Third edition. London, U.K: Kogan Page.

Topics discussed in the book that will prove important in this course include (but are not limited to): demand and cost functions, elasticity, investment, cost benefit analysis, market structure (e.g. monopoly, oligopoly and perfect competition), market regulation, and private versus public supply of transport facilities (e.g. ports, public transport and roads).

5 Advised entry level

Some further economic knowledge beyond Cole (2005) is very advisable (see, e.g., the VU courses Economics or Micro-economie 1.1). For people that do not meet this level, we advise Chapters 2, 3, 6-9, 11, 13, 18 of:
Perloff, J.M., 2009. Microeconomics, 5th (international) edition. Boston, USA: Pearson.

or Chapters 2, 4, 5, 7, 9-12, 20 of:

Sloman, J., Hinde, K., 2007. Economics for Business, 4th (international) edition. Harlow: Pearson. .

Finally, in the paper project you will be analysing a dataset using descriptive statistics and regression analysis; therefore, some knowledge on statistic/econometric will be very useful. This was, for example, taught in the VU bachelor courses Statistics II and Kwantitatieve methoden 1.5: statistische methoden. But any course that includes regressions will suffice. For those that do not meet this level or feel that they could do with a freshening up, we advise Chapters 9 and 13-15 of:
Berenson, M. L., Levine, D. M., Krehbiel, T. C., 2009. Basic Business Statistics: Concepts and Applications, 11th edition. Upper Saddle River: Pearson Prentice-Hall.

or Chapter 7 of (or in different editions, the chapter(s) on regressions):

Field, A., 2009. Discovering Statistics Using SPSS (and sex and drugs and rock 'n' roll), 3rd edition. London: Sage.

or Chapters 2-4 and 7 (please skip the proofs):

Wooldridge, J.M., 2006. Introductory econometrics: a modern approach, 3th edition. Mason: Thomson South-Western. If you would like to read up, but have a different edition than ours (and are in doubt whether the chapter numbering is the same) or have a different textbook or a reader, you can send a scan of the (brief) content to v.a.c.vanden.berg@vu.nl

6 Outline
The course begins with a general introduction to micro-economic topics needed to understand pricing, market structures and policy assessment in the transport sector (lectures 15). Next, the 6th lecture discusses privatisation and investments in transport projects: how do we decide whether to invest or not? Finally, lectures 7 to 11 discuss specific transport markets. The lectures are briefly described below. The literature references are as follows. MG: Mallard and Glaister (2008); S: Stopford (2009).

Table 1: Lectures Lecture Date: Topic: 1 3 Sep Market demand and elasticity 2 5 Sep Cost functions 3 10 Sep Market structures and pricing 4 12 Sep Competition policy 5 17 Sep Externalities, public goods 6 19 Sep Privatisation and deregulation, cost benefit analysis 7 24 Sep Road transport (1) 8 26 Sep Road transport (2) 9 1 Oct Rail Transport 10 3 Oct Inland shipping + SSS 11 8 Oct Maritime transport (1) 12 10 Oct Maritime transport (2)/ questions? Tuesdays: 11:00-12:45 Thursdays: 13:30-15:15 Lecture 1.
Introduction + Market demand. In this lecture, we start with a discussion of what the course is about. Thereafter, we discuss the theory of demand and elasticity, and see how this can be applied in practice. Literature: Lecture slides; MG, Chapter 3

Lecturer: Pels Pels Pels Pels Pels Pels Van den Berg Van den Berg Pels Rietveld Pels Pels

Location: 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05 1A-05

Lecture 2.
Cost functions Cost functions contain important information concerning the firms production technology. In this lecture, we discuss the micro-economic background of cost functions, and we provide a brief overview of applications of empirical cost functions. By the end of this lecture the student can explain the difference between sunk costs, fixed costs and variable costs. The student can also explain the different characteristics of a cost function. Literature: Lecture slides; MG, Chapter 4

Lecture 3.
Market structures and pricing. In this lecture, we discuss different market structures (monopoly, oligopoly, perfect competition), and see how they influence a transport firms pricing decisions and profitability. Moreover, we see how the market structure impacts on the welfare level. We continue with pricing. We see how price discrimination works in theory, and provide practical examples. By the end of the lecture the student can explain the different markets structures and price discrimination. Literature: Lecture slides; MG, Chapters 4-6, 8

Lecture 4.
Competition policy. In this lecture provide a brief introduction to European and national competition policy, using an example from the transport industry. By the end of the lecture the student can the idea behind competition policy. Literature: Lecture slides; MG, Chapters 5, 6, 8

Lecture 5.
Externalities and public goods. This lecture continues the discussion on costs, but now we consider external costs. We see how the decision of one party imposes cost on another party: the external costs. We discuss the welfare economic impact of external costs, and discuss instruments that alleviate such externalities. Thereafter, we turn public goods, which are goods that cannot be provided by the market. Literature: Lecture slides; MG, Chapter 9

Lecture 6.
Privatisation and deregulation, cost benefit analysis. In this lecture we return to privatisation and deregulation (first introduced in lecture 3), and discuss the motivation and consequences. We then introduce cost-benefit analysis and various forms of government intervention. After this lecture, the student is familiar with the motivation of privatisation and deregulation and their consequences in the transport sector. The student knows about cost-benefit analysis. Literature: Lecture slides; MG, Chapter 12, 13 and 15.

Lecture 7.
Road transport (1) This lecture discusses what congestion is and what its costs are in the Netherlands. It then describes congestion pricing and discusses real world applications. Finally, we will look at reasons for opposition to road pricing, and, in particular, we will discuss distributional effects. Literature: MG, 16.1-16.3 + article, sections 1, 2, 5 & 6 of Armelius and Hultkrantz (2006) + lecture slides

Lecture 8.
Road transport (2) First, we will look at capacity expansion as an alternative to road pricing. However, as government budgets become increasingly tight, it becomes harder to find funds to road expansion. This has sparked a rising interest in private road supply, which is the second focus of this lecture. Finally, we look at the fact that the amount of congestion varies over the day. How does this affect congestion pricing? Literature: MG, 16.1-16.3, 16.5-16.7 + lecture slides

Lecture 9.
Inland shipping In the Netherlands, inland waterway transport is a very important freight transport mode in terms of tonnes transported. A brief overview of this market will be provided and the implications of several developments (climate change, increase in scale) on the functioning of the market will be discussed. An article on container barge handling in the port of Rotterdam will complete the course material on inland waterway transport. Literature: Lecture slides; article Konings (2007)

Lecture 10.
Rail transport The rail transport lecture looks at the pricing issues in rail transport, at the market structures that can occur in rail transport, and at the effect of different policies in theory and as implemented in the Netherlands. Literature: Lecture slides

Lecture 11.
Maritime transport (1) Two lectures will be devoted to maritime transport. In the first lecture we deal with the shipping market cycle and explain how the overall shipping market consists of four interrelated market segments: the freight market, second-hand market, new building market and the demolition market. In addition, the economics of bulk shipping and liner shipping will be discussed. Literature: Stopford, 2.3-2.7, 3.1-3.3, 5.1-5.7, 6.2, 11.2-11.4, 13.3, 13.5, 13.9, 13.10; lecture slides

Lecture 12.
Maritime transport (2) In this lecture, the factors that have an impact on supply and demand for maritime transport will be discussed. The current impact of the growing economies in Asia on transport prices between this continent and Europe will be analyzed and a scientific article will address the topic of competition between sea-ports. Literature: Stopford, 4.1- 4.5; article De Langen (2007); lecture slides

7. Paper project
In the project, you will write a short paper (max. 5 pages) in groups of maximum 3 students. The paper is based on empirical research of one of two datasets we have available. To help you get started and to help structure your research there are weekly questions on which you should base the paper. The paper project will be useful practise for your thesis writing, and also for when you are doing (numerical) analysis in your later job. In the project, it is not only important that you learn how to do the empirical research, but also that you learn how to interpret the results you get, how to present your results, conclusions and advice, and how to interpret other studies. The project does not cover all topics of the course; it is an application to a number of topics in the course. The project is structured as follows. In the first week there is a tutorial (see Table 2), during which the requirements and process are explained. There are two topics: (1) estimating a demand function for inland shipping of goods, and (2) estimating a cost function for passenger rail transport. The project will be done groups. In the first week, students give their preferences for a group and topic (see also Table 3). But the supervisors will make the final groups and their topics. More detailed descriptions of the datasets, assignments and paper guidelines will be posted on BlackBoard. Table 2: Tutorial for the paper project Tutorial Date: Topic: Lecturer: Location: 1 3 Sep Introduction van den Berg 1A-05 Tuesday: 13:30-15:15 Literature: Lecture notes + paper guide lines + detailed descriptions of the datasets. 6

The following weeks there are no lectures. Every week (starting week 2) a number of questions need to be answered. All answers are necessary steps in writing the short paper, and need to be handed in by email to your supervisor (half a point per week is deducted from the final score if answers are not handed in at the end of each week). If necessary, the supervisor will give feedback on these answers. Using your answers you should write a short paper, which is part of the examination (25%). The paper deadline is the day before exam, and the paper should be uploaded via safeassignment on BlackBoard (see also Table 3). The goal of the paper project is that the student learns to write an (academic) paper based on an empirical research. Herein, it is important not just to say the answer is 5, but also think and explain why 5 is interesting, what does it mean, and what are the policy or business implications. Since you are writing a paper, we will also look at your English and whether the referencing is done correctly. The reference list should include all used sources, and should be in one, correctly applied, format (e.g. Harvard). You should at least use 5 relevant articles from refereed academic journals. Table 3: deadlines paper project
Description Preferred group members and topic Weekly questions Final paper Deadline Week 1, Friday 17:00 Week 2-6, Friday 17:00 17:00 on the day before the exam How to hand in your work Email to v.a.c.vanden.berg@vu.nl Email your supervisor Safeassignment on blackboard

8 Examination
Written examination (75%) and essay written in groups of max 3 (25%)

9 Literature
Mallard, G., Glaister, S., 2008. Transport economics: theory, application and policy. London: Palgrave MacMillan. Stopford, M., 2009. Maritime economics, 3rd edition. London: Routledge. Lecture slides. Selected articles The provisional list of articles is (in order of the lectures they will be used) Konings, R., 2007. Opportunities to improve container barge handling in the port of Rotterdam from a transport network perspective. Journal of Transport Geography, 15(6), 443454. Armelius, H., Hultkrantz, L., 2006. The politicoeconomic link between public transport and road pricing: an exante study of the Stockholm roadpricing trial. Transport Policy, 13(2), 162-172. de Langen, P.W., 2007. Port competition and selection in contestable hinterlands; the case of Austria. European Journal of Transport and Infrastructure Research, 7(1), 114.