Table Of ContentAdvances in Spatial Science
Editorial Board
David F. Batten
Manfred M. Fischer
GeoffreyJ.D. Hewings
Peter Nijkarnp
Folke Snickars (Coordinating Editor)
Springer
Berlin
Heidelberg
New York
Barcelona
Budapest
Hong Kong
London
Milan
Paris
Santa Clara
Singapore
Tokyo
Titles in the Series
Cristofaro S. Bertuglia, Manfred M. Fischer
and Giorgio Preto (Eds.)
Technological Change, Economic Development and Space
XVI, 354 pages. 1995.
ISBN 3-540-59288-1
Harry Coccossis and Peter Nijkamp (Eds.)
Overcoming Isolation
Information and Transportation
Networks in Development Strategies for Peripheral Areas
VIII, 272 pages. 1995
ISBN 3-540-59423-X
Luc Anselin and Raymond J.G.M. Florax (Eds.)
New Directions in Spatial Econometrics
XIX, 420 pages. 1995
ISBN 3-540-60020-5
Heikki Eskelinen and Falke Snickars (Eds.)
Competitive European Peripheries
VIII, 271 pages. 1995
ISBN 3-540-60211-9
Jeroen C.J.M. van den Bergh, Peter Nijkamp
and Piet Rietveld(Eds.)
Recent Advances in Spatial Equilibrium Modelling
VIII, 392 pages. 1996
ISBN 3-540-60708-0
Peter Nijkamp, Gerard Pepping and David Banister
Telematics and Transport Behaviour
XII, 227 pages. 1996
ISBN 3-540-60919-9
David F. Batten . Charlie Karlsson (Eds.)
Infrastructure
and the
Complexity
of Economic
Development
With 40 Figures
and 63 Tables
Professor Dr. David F. Batten
The Temaplan Group
Applied Systems Analysis
for Industryand Government
P.O. Box3026
Dendy BrightonVIC. 3186
Australia
Professor Dr. Charlie Karlsson
Jonkoping University
Jonkoping International Business School
P.O. Box1026
S-5511l Jonkoping
Sweden
Die Deutsche Bibliothek- CIP-Einheitsaufnahme
Infrastructureand the complexilyofeconomic denlopment :
with 63 tables/ David F. Ballcn ;Charlie Karlsson (cd.).
Berlin; Heidelberg; NewYork; Barcelona; Budapest; Hong
Kong; London; Milan; Paris; SantaClara; Singapore;
Tokyo: Springer. 1996
(Advon= inspotial science)
ISBN3-540-61333-1
NE: Ballen. DavidF. [H...g.J
ISBN-13: 978-3-642-80268-3 e-ISBN-13: 978-3-642-80266-9
DOl: 10.1007/978-3-642-80266-9
Thisworkissubjectto copyright. All rights arereserved.whetherthewhole orpart
ofthematerialisconcerned,specificallytherightsoftranslation.reprinting,reuseof
illustrations, recitation, broadcasting. reproduction on microfilm or in any other
way. and storage in data banks. Duplication ofthis publication or parts thereofis
permitted only under the provisions ofthe German Copyright LawofSeptember9.
1965. in its current version, and permission for use must always be obtained from
Springer-Verlag. Violations are liable for prosecution under the German Copyright
Law.
CSpringer-VerlagBerlin.Heidelberg1996
SoftcoverreprintofthehardcoverIstedition1996
Theuseofgeneraldescriptivenames, registered names,trademarks,etc.inthispub
licationdoesnotimply,evenintheabsenceofaspecificstatement.thatsuch names
are exempt from the relevant protective laws and regulations and therefore free for
generaluse.
SPIN10516914 42/2202-5 4 3 2 1 0- Printedonacid-freepaper
PREFACE
Fewotherfacetsofsocialandeconomiclifearesopoorlyunderstoodandyetsoindisput
ablyvitalforprosperousdevelopmentasirifrastructure.Sincetheearly 1980sresearchers
andpolicymakersinvariousOECD nations havestartedtoreaddress theissueofinfra
structureinvestments.Thisrenewedinteresthasbeenpromptedbyavarietyofconcerns.
Oneobservationwasthatsuchinvestmentsweredecliningfromlevelswhichmighthave
been inadequate in the first place. A second observation was that the timing ofthese
cutbacks in infrastructure spending seemed to roughly coincide with lower rates of
growthinoutputorproductivity. Thisraisedtheintriguingquestionofwhetherthelatter
mightbeattributabletotheformer. Coulditbethatinfrastructureinvestmentscontrolan
economy's rate of productivity growth? The response in many countries has been to
initiatetheirownresearchinanattempttoverifyorrejectthishypothesis.
Butthemorewelearnabouttheroleofinfrastructureanditsrelationshipswiththerest
ofthe economy, the more complicated it seems to be. Time itselfis quite difficult to
accommodategiven thewidevarietyofspeedsatwhichdifferentpartsofaneconomycan
adjust. Because ofthis inherent complexity, we tend to break the problem down into
"bite-sizedchunks", therebyenablingus toisolatethepartsofinteresttous- suchasthe
impact ofinfrastructure on productivity. In this way wecan ignore the complex inter
actionsbetweenourareaofinterestandtherestofourworld. By sayingceterisparibus,
weoverlookmanyotherkeyinfrastructuralimpactslikethoseontheenvironmentandon
ouroverallqualityoflife.Thisdistortsthetruepicture.
The selection ofpapers containedin this volume were presented atan international
workshop on "Infrastructure, Economic Growth and Regional Development" held in
Jonkoping, Sweden during June 1993. All ofthe authors are leading specialists in the
infrastructurefield, whosepapersrepresentcutting-edgeattemptstograpplewithsomeof
theinfrastructureissuesmentionedabove. Therewasaspecialreasonforholdingsucha
workshop in Jonkoping. During the summer of 1990, the Jonkoping International
Business School (JIBS) Foundation was created with the support of the private and
public sectors. Four years later, the Jonkoping International Business School was
establishedby an actofSwedishParliament. In theinterveningyears, theJIBS Founda
tion sponsored and organized a series of workshops featuring prominent international
scientists in a variety offields. Their purpose was to stress the intention that the new
business school should have a strong research profile - which had been one of the
recommendationsmadeby theoriginalproponentsoftheschool(AleeE. Anderssonand
CharlieKarlsson).
Thisexpansionofhighereducationandresearchactivitiesviathenew businessschool
was,initself,amajorinfrastructureinvestmentin theJonkopingRegion. Thusoneofthe
workshop's aims was intertwined with those of the school. A secondary aim was to
assessthecompetitiveimportanceofinvestmentsinknowledge-enhancinginfrastructure
vis-a-vis mobility-enhancinginfrastructure. Financial supportwasprovidedbytheJIBS
foundation andtheSwedishTransportandCommunicationsResearchBoard.Heldunder
the auspices of CIB Working Commission W95 (Infrastructure), the workshop was
organizedbyaninternationalcommitteewhichincludedAkeE. Andersson,BotjeJohans
son,T.R.LakshmananandFolkeSnickars.JenniferWundersitzcoordinatedtheeditorial
workandIngridLindqvistkeyboardedthemanuscript.Toeachoftheabove, theEditors
wouldliketoexpresstheirsincerethanks.
DavidF. Batten CharlieKarlsson
Melbourne,Australia Jonkoping, Sweden
CONTENTS
Preface v
1. InfrastructureandtheComplexityofEconomicDevelopment:
AnExploratoryIntroduction I
DavidF. Batten
PARTA: INFRASTRUCTUREANDPRODUCTIVITY
2. InfrastructureandManufacturingProductivity:RegionalAccessibility
andDevelopmentLevelEffects 17
EdwardM.Bergman&:DaoshanSun
3. Assessing theRoleofInfrastructureinFrancebyMeansofRegionally
EstimatedProductionFunctions 37
RemyPrud'homme
4. TheLinkageBetweenTransportationInfrastructureInvestmentand
Productivity: AU.S. FederalResearchPerspective .49
SusanJ.Binder&TheresaM. Smith
5. PublicCapital,PrivateSectorProductivityandEconomicGrowth:
AMacroeconomicPerspective 61
JaccoHakfoort
PARTB: INFRASTRUCTUREPOLICY: PRICINGANDOWNERSHIP
ISSUES
6. Infrastructure,WagesandLandPrices 75
AndrewF. Haughwout
7. IntergovernmentalFiscalRelationsinCalifornia: ACritical
Evaluation 97,
JulietA.Musso &John M. Quigley
8. DoesMultiplicityMattermorethan OwnershipintheEfficiency
ofInfrastructureServices? 125
FrannieHumplick
9. Ownership,InvestmentandPricingofTransportandCommunications
Infrastructure 147
KennethButton
PARTC:THECOMPLEXITYOFECONOMICDEVELOPMENT
10. Complexity,AdaptabilityandFlexibilityinInfrastructureand
Regional Development: InsightsandImplicationsforPolicy
AnalysisandPlanning : 169
JonathanL. Gifford
viii
11. ProductionMilieu andCompetitiveAdvantages 187
BorjeJohansson & RuneWigren .
12. AReviewofInfrastructure'sImpactonEconomicDevelopment.. 213
ChristineKessides
13. InfrastructureandUrbanDevelopment: TheCaseoftheAmsterdam
OrbitalMotorway 231
FrankBruinsma, GerardPepping & PietRietveld
14. InnovativeCapacity,Infrastructureand RegionalPolicy 251
LuisSuarez-Villa
15. ValuationsofEnvironmentalExternalities: SomeRecentResults 271
EmileQuinet
AuthorIndex 293
ListofContributors 297
CHAPTER 1
Infrastructure and the Complexity of Economic Develop
ment: An Exploratory Introduction
David F. Batten
TheTemaplanGroup,Melbourne
1.1 THE PROBLEM
1.1.1 Complexity in Economics
In the Preface to his recent book on economic sense and nonsense in this "Age of
DiminishedExpectations",theMITeconomistPaulKrugmanwrote:
"Whyiseconomicssuchahardsubject?
Panoftheanswerhastodowithcomplexity".
The more we learn about theeconomy, the morecomplicateditseems to be. Although
economics can truthfully claim that it attempts to study human beings engaged in a
relatively simpleactivity (theexchangeofgoodsandservices),complicationsstillarise
because those same human beings are often assumed to exhibit identical behavioural
traits.Thekindofrationalitynormallyassumedineconomics- perfect,logical,deductive
rationality- simply breaks down in many common decision situations. Human agents
cannotrely upon otheragents to behaveinaperfectlyrational manner. The truthofthe
matter is that each economic agent must resort to educated guesswork in a world of
subjective beliefs, where there is little room for well-defined premises and perfectly
logicalchoices. Inthissubjectiveworld,veryfewproblemsaresimplebecausemanyare
ill-defined.
Krugman is notalonein his beliefthatthevariousoversimplifiedportraitsofhuman
behaviourhaveretardedprogressineconomics. BrianArthur, for example, has argued
thatineconomicdecisioncontextsthatarecomplicatedorill-defined,humanbeingsrely
oninductiveratherthandeductivereasonIng. BuildingontheworkofJohnHollandand
other colleagues, Arthur claims that in such situations we induce a variety ofmental
modelsorhypothesesavailableto usatthetime,actuponthemostcredibleofthese,and
laterreplace thesemodels with neweronesiftheoriginalonesceaseto work. This kind
ofreasoning generates an extremely rich psychological world in which each agent's
mental models or hypotheses compete for survival against those of others, in an
environmentformed byotheragents' mentalmodelsorhypotheses. Suchaworldis both
evolutionaryandcomplex.
2 InfrastructureandtheComplexityofEconomicDevelopment
The persistentreadercanfind ample supportfor the view thatthe economy is much
morecomplex thancustomarilyportrayed, partly because human beingsdo not behave
rationallyandidentically. A smallbutgrowingbandofeconomistsare comingtoterms
with someofthedifficulties, whichareevenreferred to in the worksofafew classical
economists:
"Theprocessofsociallifeisafunctionofsomanyvariab
les many of which are not amenable to anything like
measurementthatevenmerediagnosis ofa given stateof
things becomes a doubtful matter quite apart from the
formidable sources oferror that open up as soon as we
attemptprognosis."(Schumpeter, 1942)
"We have suggested that there is no agreement on how
economicdevelopmentproceedsandhaveimpliedthatthis
is because the process is not simple. There are many
variablesinvolved, and there isawiderangeofsubstitut
abilityamongingredients- land,capitalandthequalityand
quantity oflabour, and technology can substitute for one
another, above certain minima, although there are at the
same time certain complementary relationships among
them. Thewilltoeconomiseandorganisationareprobably
the only indispensable ingredients. For the rest, none are
necessaryandnonesufficient."(Kindleberger, 1958)
Inthisintroductorychapter, Ishallargue (likeArthur) thatineconomicsweneedtopay
moreattention toinductivereasoning, topath-dependentdynamics, andtotheemergent
behaviourofcomplex self-organizing systems (see, e.g. Nicolis and Prigogine, 1977;
Raken, 1978; Batten, 1982). More specifically, I shall dwell on a few examples
pertainingtotransportationinfrastructure. Someinstancesoflock-inandpath-dependence
associated with certain modes of transportation will be examined and their dynamic
learning character revealed. Connections with evolution and complexity will be
considered, asaforerunnertoadiscussionofthearticles whichfollow in theremainder
ofthis book.
1.1.2 The Path-Dependent Character of Infrastructure Systems
The complexity of infrastructure systems arises partly from the interface between a
relatively staticarena(orbackcloth) whichsupports andconstrainsarelativelydynamic
trafficofactivities (seeJohnson, 1995).Theemergentbehaviourofthe systemdepends
onthedetaileddesign ofthearenaand the collectivebehaviourofthe traffic using it. In
the caseoftransportation, thearenahasanetwork structureandsoitsperformancealso
dependsontheconnectivityofthenetworkaswellasitscapacity.
Atransportationnetworkforms anarenaon whichmanydifferentdecisionsareacted
out. Although some seemroutine(suchastheroutechosenbydifferentdrivers toreach
theirworkplace),eachoneisbasedonincompleteinformationaboutthechoicesofother
drivers and the state ofthe system as a whole. Because ofthe uncertain behaviour of
differentdrivers, we know now thataunique trafficequilibriumis less likely than was
firstbelievedbyclassical transport analysts. Differencesin thedurabilityofcapital, the
speed ofinformation diffusion, and adaptability to changes in the environmentjointly
determine the time it may take for different transportation systems to reach a new
equilibriumorremainoutofequilibrium. In thefaceofmultiplecandidates,thequestion
ofhowaparticularequilibriummayormay notbeselectedisofparticularimportance.
DavidF.Batten 3
Acompletearenaofinfrastructurechangesmuchmoreslowlythandothepatternsof
traffic utilizing it. In order to grapple with the multiple equilibria problem, various
processes of change need to be distinguished according to their adjustment speed.
Dependingon thelengthofthetimeperiodchosen, someprocessesmay beregarded as
invariantwhereasothersmayreachtheirequilibriumratherquickly. Theslavingprinciple
impliesanorderingofprocessesinaccordancewiththeiradjustmenttimeonascalefrom
slowtofast (seeHaken, 1978).ThefollowingFigureillustrateshowthisprinciplemight
help ustodistinguish betweenslowandfast adjustmentprocessesinthecontextoftrade
andtransportationanalysis.
SPEEDOF
ADJUSTMENT
VerySlow
(Decades)
Slow
(5-10years)
Moderate
(1-2years)
Fast
(Weeklyor
evendaily)
Figure 1.1 Nestingofslowandfastadjustmentprocessespertainingtotradeand
transportation
In theface ofsuch differences, it may berelativelyeasy for a transportation system to
"lock-in"to aparticularoutcomeorequilibriumwhich possessesaperceivedeconomic
advantage at the time (see Arthur, 1994b). Examples of technological lock-in are
numerous.Twopopularonescited byArthurandPaulDavidarethestandardkeyboard
layout (QWERTY) and home tape cassette system (VHS). Neither the QWERTY nor
VHS systems are the most efficient solutions technologically, but they established
themselveswellinadvanceofbettercompetitors. Theirdominanceresultedmoreorless
by accident rather than from any demonstrated superiority in the marketplace. Once
adopted, they became well and truly "locked in" as standards because of positive
feedbackslikeuserfamiliarityandthetremendouscostinvolvedtopermitchangeovertoa
superioralternativeatalaterdate.
Whenitcomestotransportationandindustriallocation,lock-incanoccurassequential
decisionscarveout an advantage which society finds itimpossible to escapefrom ata
later date (when the advantages of alternative systems become more'apparent).
Furthennore, the beneficiaries are notalwayseasyto predict. Take thecaseoftheErie
