Dynamic Efficiency and Transportation Infrastructure Investment”
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The concept of efficiency has long been applied to transportation, and was a prominent
justification for the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)
[emphasis added]. However, other ideals have justified transportation policy often to the
detriment of efficiency. In this paper I argue that a broader view of efficiency is needed and that
it should be the primary criterion in making transportation policy. This conception of efficiency
developed here, dynamic efficiency, draws from transaction cost theory to incorporate
institutions into the analysis and as such resolves some dilemmas posed by previous economic
analysis. It also suggests an analytical method for making decisions about the design of
institutional structure in this policy area. Finally it has a dynamic component which charts out a
path for optimal economic development in a holistic way that integrates transportation policy
with environmental, land use, and social policy. Several illustrations of how existing
transportation policy could be changed to improve dynamic efficiency are given.