Beyond the Pavement: The Hidden Costs and Benefits of Urban Road Construction

 In a highly developed city, it is usually densely populated, with rapid economic growth and concentrated traffic pressure. When the existing number of lanes no longer meets people’s traffic needs, the government’s obvious response is to add new roads to alleviate the pressure on existing lanes, but is it that simple? This requires us to analyse the advantages and disadvantages of doing so from an externality perspective.

In economics, roads are public goods because the consumption of roads is non-rivalrous and non-excludable. Non-excludability means that once the goods are produced, people cannot be excluded from using it. Non-rivalry means that your usage of the public goods doesn’t affect others’ usage of the public goods. Road construction can generate both positive and negative externalities. 

As roads are non-excludable, the positive externality created by new roads is typically under-provided, as people tend to free-ride on the road without contributing to its cost. Therefore, the road provision is below the optimal level, which is pareto-inefficient. On the other hand, goods with negative externality are typically over-provided. This is mainly due to construction people not internalising the cost associated with building roads into their pricing(Weitzman, 2015). If they don’t need to pay for the cost of the noise during construction, then the road construction is above the socially optimal level, which is also pareto-inefficient. Overall, due to under-provision of positive externalities and over-provision of negative externalities associated with the road construction, the provision of road construction is pareto-inefficient. To solve the negative externality problem, governments can levy Pigouvian taxes on the noise pollution during road construction. This allows the government to internalise the negative externalities into economic calculation of those responsible for it (Weitzman, 2015). 

Positive Externalities

One positive externality from building new roads is the appreciation of property values in surrounding areas. This appreciation arises as improved connectivity raises demand for the properties in that location, as roads improve accessibility, reducing travel time to key amenities like schools, workplaces, and shopping centres. In addition to providing homeowners with more equity, rising property values should lead to an increase in government revenue through higher property tax. This additional revenue could be used to make further improvements within the area, such as improving schools or hospitals, causing a multiplier effect, with the creation of new jobs in the location. Constructing new roadways can greatly improve traffic efficiency, resulting in another positive externality that brings advantages to the wider society. Enhanced road infrastructure generally results in the alleviation of congestion on current routes, leading to decreased journey durations and a lower occurrence of traffic congestion. In addition, a more streamlined traffic flow leads to a decrease in vehicle emissions, improving air quality and reducing greenhouse gas emissions.

Negative Externalities

The construction of roads generate negative externalities with spillover effects. The ecological damage from road construction is not only damaging to the environment but also the local communities. Emission of harmful pollutants in construction exacerbates air pollution which leads to respiratory diseases amongst the local community, or soil erosion of the environment. This affects the local air quality and public health, particularly in marginalised communities, worsening existing socioeconomic disparities. These negative externalities stem from the lack of property rights on environmental resources and mechanisms to internalise these costs. Consequently, there will be suboptimal resource allocation in construction, resulting in pareto-inefficiency. Despite benefitting the road users and constructors, the external costs to society outweighs as they suffer more. In this scenario of pareto-inefficiency, building new roads fails to make someone better off without making someone else worse off. 

Induced Demand and Traffic Congestion

Furthermore, the belief that building new roads will automatically alleviate traffic is misguided. Instead, it can lead to induced traffic demand as it will attract an influx of new drivers seeking shortcuts (Mann, 2014). Safety concerns arise from the increased risks of accidents and road fatalities for both commuters and pedestrians (Anciaes, Metcalfe & Heywood, 2017). The costs linked to this, such as property damages and emergency response services, impose externalities on the wider society.

Coase Theorem In Action

Another approach to solve the externality problem is to use the Coase theorem, which suggests that externalities can be solved through negotiation, if the property rights are clearly defined and transaction costs are low enough (Madema, 2014). In road construction case, if the government can clearly define who owns the property rights, i.e Whether the road construction team has the right to pollute the air or is the residents around have the right to enjoy the clean air, then the negative externalities can be solved through the negotiation between the road construction team and the local residents. However, the Coase method is not always effective due to the high transaction cost during the negotiation and being a lengthy process.

Tragedy of Commons

The case of “tragedy of commons” is also not negligible. The reason for the so-called "tragedy" is that after the road is built, the other existing roads will no longer be as effective in terms of transportation, because although the construction of this new road provides utility, some of its utility is taken from other roads. For example, there was originally only one road to reach a place, and the other direction was barren. Now, a new road has been built on barren land, and people can choose either of the two roads. For the barren land, building a new road is definitely an improvement, but since people are scattered into two roads, fewer people are travelling on the original road. 

Conclusion

In summary, although the original intention of building roads is good, the process and results of road construction may lead to negative externalities. Once negative externalities exceed positive externalities, building new roads becomes unnecessary. Therefore, before constructing roads, it is important to consider external influences from multiple aspects, including government and individual levels, in order to optimise in as many aspects as possible and truly improve people's livelihoods. 

References

Anciaes, P. R., Metcalfe, P. J. and Heywood, C. (2017). “Social impacts of road traffic: perceptions and priorities of local residents”. Impact Assessment and Project Appraisal, 35(2), 172-183. Available at: https://www.tandfonline.com/doi/full/10.1080/14615517.2016.1269464 

 

Mann, A. (2014). “What’s up with that: Building Bigger Roads Actually Makes Traffic Worse”. Wired. Available at: https://www.wired.com/2014/06/wuwt-traffic-induced-demand/

 

Surendra, P. (2023). “Building More Roads Just Creates More Traffic. Here’s The Proof.”. Greenpeace UK. Available at: https://www.greenpeace.org.uk/news/building-new-roads-just-creates-more-traffic-heres-the-proof/

Weitzman, Martin L. (2015). “Internalising the Climate Externality: Can a Uniform Price Commit Help?” Economics of Energy & Environmental Policy. , 4(2), 37–50. Available at https://www.jstor.org/stable/26189379

Medema,S.G. (2014). “Economics and Institutions: Lessons from the Coase Theorem”. Revue Économique, 65(2), 243–261. Available at: https://www.jstor.org/stable/42771815