Transport economics, planning policy and demand modelling
The exam tests whether you can forecast demand, convert it into user and non-user benefits, and appraise a scheme on discounted cash flow - including the policy instruments Hong Kong actually uses.
The four-step model
- Trip generation: regression or cross-classification on household attributes; outputs trip ends per zone.
- Distribution: gravity or entropy models with a deterrence function; calibrate against observed trip-length distributions.
- Mode choice: multinomial or nested logit; utility includes in-vehicle time, wait, walk, cost, transfers.
- Assignment: Wardrop user equilibrium (no traveller can improve unilaterally) versus system optimum, which minimises total cost and is the theoretical basis for congestion pricing.
Worked example
Rail utility −0.80, bus utility −1.20, binary logit. P(rail) = e^−0.80/(e^−0.80 + e^−1.20) = 0.4493/(0.4493 + 0.3012) = 0.599, i.e. a 60/40 split. A 10-minute improvement worth −0.30 in utility lifts rail to e^−0.50/(e^−0.50 + e^−1.20) = 0.607/0.908 = 0.669 - a 7-point share gain. Note the sensitivity of logit near equal utilities.
Fare elasticity check: a 10% fare rise with own-price elasticity −0.3 gives 3% ridership loss, revenue index 1.10 × 0.97 = 1.067, i.e. +6.7% revenue - but the welfare effect depends on the rule-of-half change in consumer surplus, not revenue.
Appraisal
Discount benefits and costs to present value: NPV = Σ(Bt − Ct)/(1+r)^t; BCR = PV benefits / PV costs; use the prescribed social discount rate and a stated appraisal period with residual value. Benefits include time savings, vehicle operating cost, accident reduction, emissions and reliability; costs include capital, maintenance, operating subsidy. Value of time should be segmented by purpose and mode, and reliability valued separately.
Traps that cost marks
- Applying point elasticities to large changes without arc adjustment.
- Double counting benefits (e.g. time savings plus generated trips).
- Comparing undiscounted totals, or omitting maintenance and renewal costs.
- Using stated-preference weights unsegmented, or ignoring induced demand.
- Quoting a benefit–cost ratio without stating the discount rate and period.