Econometric Analysis of Highway Construction Technology (1989)

 

©Antti Talvitie, Catharina Sikow, 1989

Econometric Analysis of Highway Construction Technology

Selected Proceedings of the Fifth World Conference on Transport Research,
Volume II, pp 69-84, WCTR 1989 (with Catharina Sikow). 
 
A.P. Talvitie (aptalvitie(at)gmail.com)
and Catharina Sikow

ABSTRACT

Finland Highway and Waterways Administration (TVH) data from 1978 to 1987, supplemented over 100 recently completed highway project data, with a duration of 1-4 years. The paper is a comprehensive analysis of highway construction technology with implications for road administration organization and management. Three groups of variables were used: four output classes (Y,); four input factor prices (P); and three management variables (M). Time variable gives a general idea of technological change. The flexible translog cost function was used to estimate the highway construction cost function:

Total costs = f(P, Y, M,T, D) 

According to tests, input prices were found separable from both outputs and management variables, but the latter two not separable from each other. There are economies of scale but no economies of scope. TVH is a multi-product firm, with non-Leontief form and non-Cobb-Douglas type production function construction technology.

Results regarding the management variable are important. The project completion time and the annual number of projects should be reduced in every region. There are too many (highway) regions (in Finland) and each is operating on a too low scale; 4-5 regions, instead of the actual 13, would be sufficient for the annual volume of road work, assuming the present product mix. The central administration should help ensure the competitiveness of the factor market, free entry to the market for contract offers, and decrease the rigidity of the labor market.

Economies of scale and advantages of specialization make the number of regions and the organizational structure an important issue in Highway Administration. Larger region size enables efficient utilization of production factors, minimizes the harm from indivisibility of labor and capital, and allows full advantages of specialization. A bigger project size is likely to induce contractors to innovate and develop new production methods. 

FULL PAPER, Pdf, 1291 KB, 25 pages.