That’s not at all the same question as “Are high-speed trains a good idea?”
Any decent HSR would generate quite a lot of value not captured by fares. It would be more informative to compare the economic development of regions that have built high-speed rail against that of similar regions which haven’t or which did so later.
France’s TGV is profitable. Do you think that because it might not have been built without government funding it was a bad idea to build?
It would be more informative to compare the economic development of regions that have built high-speed rail against that of similar regions which haven’t or which did so later.
If the HSR charges based on marginal cost, and marginal and average cost are significantly different, then this could be a problem. I intuitively assumed they’d be fairly close. Thinking about it more, I’ve heard that airports charge vastly more for people who are flying for business than for pleasure, which suggests there is a signifcant difference. Of course, it also suggests that they might be able to capture it through price discrimination, since the airports seem to manage.
How much government help is necessary for a train to be built?
It would be more informative to compare the economic development of regions that have built high-speed rail against that of similar regions which haven’t or which did so later.
The economics of a train is not comparable to the economics of a city. If you can actually notice the difference in economic development caused by the train, then the train is so insanely valuable that it would be blindingly obvious from looking at how often they’re built by the private sector.
France’s TGV is profitable. Do you think that because it might not have been built without government funding it was a bad idea to build?
Making a profit is not a sufficient condition for it to be worth while to build. It has to make enough profit to make up for the capital cost. It might well do that, and it is possible to check, but it’s a lot easier to ask if one has been built without government funding.
If it is worth while to build trains in general, and the government doesn’t always fund them, then someone will build one without the government funding them.
If you can actually notice the difference in economic development caused by the train, then the train is so insanely valuable that it would be blindingly obvious from looking at how often they’re built by the private sector.
I don’t understand the reasoning by which you conclude that if an effect is measurable it must be so overwhelmingly huge that you wouldn’t have to measure it.
On a much smaller scale, property values rise substantially in the neighborhood of light rail stations, but this value is not easily captured by whoever builds the rails. Despite the measurability of this created value, we do not find that “[light rail] is so insanely valuable that it would be blindingly obvious from looking at how often they’re built by the private sector.”
If the effect is measurable on an accurate but imprecise scale (such as the effect of a train on the economy), then it will be overwhelming on an inaccurate but precise scale (such as ticket sales).
You are suggesting we measure the utility of a single business by its effect on the entire economy. Unless my guesses of the relative sizes are way off, the cost of a train is tiny compared to the normal variation of the economy. In order for the effect to be noticeable, the train would have to pay for itself many, many times over. Ticket sales, and by extension the free market, might not be entirely accurate in judging the value of a train. But it’s not so inaccurate that an effect of that magnitude will go unnoticed.
Am I missing something? Are trains really valuable enough that they’d be noticed on the scale of cities?
Faster, more convenient transportation is what fares are charging for. Non-captured value is more complicated than that.
If the non-captured value is 20% of the captured value, it’s highly unlikely that trains will frequently be worth building, but rarely capture enough value. That would require that the true value stay within a very narrow area.
If it’s not a monopoly good, and marginal costs are close to average costs, then captured value will only go down as people build more trains, so that value not being captured doesn’t prevent trains from being built. If it is a monopoly good (I think it is, but I would appreciate it if some who actually knows tells me), and marginal costs are much lower than average costs, then a significant portion of the value will not be captured. Much more than 20%. It’s not entirely unreasonable that the true value is such that trains are rarely built when they should often be built.
That’s part of why I asked:
How much government help is necessary for a train to be built?
If the government is subsidizing it by, say, 20%, then the trains are likely worth while. If the government practically has to pay for the infrastructure to get people to operate trains, not so much.
Also, that comment isn’t really applicable to what you just posted it as a response to. It would fit better as a response to my last comment. The comment you responded to was just saying that unless the value of trains is orders of magnitude more than the cost, you’d never notice by looking at the economy.
If the HSR charges based on marginal cost, and marginal and average cost are significantly different, then this could be a problem. I intuitively assumed they’d be fairly close. Thinking about it more, I’ve heard that airports charge vastly more for people who are flying for business than for pleasure, which suggests there is a significant difference.
Marginal and average cost are obviously different, but your example of business fliers is not relevant. Business fliers aren’t paying for their flights, but do often get to choose which airline they take. If there is one population that pays for their own flights and another population that does not even consider cost, it would be silly not to discriminate whatever the relation between marginal and average cost.
The businesses are perfectly capable of choosing not to pay for their employees flights. The fact that they do, and that they don’t consider the costs, shows that their willingness to pay is much higher than the marginal cost. If it wasn’t for price discrimination, consumer surplus would be high, and a large amount of value produced by the airlines would go towards the consumers.
Are high-speed trains natural monopolies? That is, are the capital costs (e.g. rail lines) much higher than the marginal costs (e.g. train cars)? I think they are, and if they are considering the consumer surplus is important, but if they’re not, then it doesn’t matter.
The fact that they do, and that they don’t consider the costs, shows that their willingness to pay is much higher than the marginal cost.
What marginal cost are you referring to here? If it’s the cost to the airline of one butt-in-seat, we know it’s less than one fare because the airline is willing to sell that ticket. And this has nothing to do with average cost. I think you’ve lost the thread a bit.
What I mean is that, if everyone payed what people who travel for pleasure pay, then people travelling for business would pay much less than they’re willing to, so the amount of value airports produce would be a lot less than what they’d get. If they charged everyone the same, either it would get so expensive that people would only travel for business, even though it’s worth while for people to travel for pleasure, or it would be cheap enough that people travelling for business would fly for a fraction of what they’re willing to pay. Either way, airports that are worth building would go unbuilt since the airport wouldn’t actually be able to make enough money to build it.
That’s not at all the same question as “Are high-speed trains a good idea?”
Any decent HSR would generate quite a lot of value not captured by fares. It would be more informative to compare the economic development of regions that have built high-speed rail against that of similar regions which haven’t or which did so later.
France’s TGV is profitable. Do you think that because it might not have been built without government funding it was a bad idea to build?
If the HSR charges based on marginal cost, and marginal and average cost are significantly different, then this could be a problem. I intuitively assumed they’d be fairly close. Thinking about it more, I’ve heard that airports charge vastly more for people who are flying for business than for pleasure, which suggests there is a signifcant difference. Of course, it also suggests that they might be able to capture it through price discrimination, since the airports seem to manage.
How much government help is necessary for a train to be built?
The economics of a train is not comparable to the economics of a city. If you can actually notice the difference in economic development caused by the train, then the train is so insanely valuable that it would be blindingly obvious from looking at how often they’re built by the private sector.
Making a profit is not a sufficient condition for it to be worth while to build. It has to make enough profit to make up for the capital cost. It might well do that, and it is possible to check, but it’s a lot easier to ask if one has been built without government funding.
If it is worth while to build trains in general, and the government doesn’t always fund them, then someone will build one without the government funding them.
I don’t understand the reasoning by which you conclude that if an effect is measurable it must be so overwhelmingly huge that you wouldn’t have to measure it.
On a much smaller scale, property values rise substantially in the neighborhood of light rail stations, but this value is not easily captured by whoever builds the rails. Despite the measurability of this created value, we do not find that “[light rail] is so insanely valuable that it would be blindingly obvious from looking at how often they’re built by the private sector.”
If the effect is measurable on an accurate but imprecise scale (such as the effect of a train on the economy), then it will be overwhelming on an inaccurate but precise scale (such as ticket sales).
You are suggesting we measure the utility of a single business by its effect on the entire economy. Unless my guesses of the relative sizes are way off, the cost of a train is tiny compared to the normal variation of the economy. In order for the effect to be noticeable, the train would have to pay for itself many, many times over. Ticket sales, and by extension the free market, might not be entirely accurate in judging the value of a train. But it’s not so inaccurate that an effect of that magnitude will go unnoticed.
Am I missing something? Are trains really valuable enough that they’d be noticed on the scale of cities?
Are you claiming that a scenario in which
Fares cover 90% of (construction + operating costs)
Faster, more convenient transportation creates non-captured value worth 20% of (construction + operating costs)
is impossible? You seem to be looking at this from a very all-or-nothing point of view.
Faster, more convenient transportation is what fares are charging for. Non-captured value is more complicated than that.
If the non-captured value is 20% of the captured value, it’s highly unlikely that trains will frequently be worth building, but rarely capture enough value. That would require that the true value stay within a very narrow area.
If it’s not a monopoly good, and marginal costs are close to average costs, then captured value will only go down as people build more trains, so that value not being captured doesn’t prevent trains from being built. If it is a monopoly good (I think it is, but I would appreciate it if some who actually knows tells me), and marginal costs are much lower than average costs, then a significant portion of the value will not be captured. Much more than 20%. It’s not entirely unreasonable that the true value is such that trains are rarely built when they should often be built.
That’s part of why I asked:
If the government is subsidizing it by, say, 20%, then the trains are likely worth while. If the government practically has to pay for the infrastructure to get people to operate trains, not so much.
Also, that comment isn’t really applicable to what you just posted it as a response to. It would fit better as a response to my last comment. The comment you responded to was just saying that unless the value of trains is orders of magnitude more than the cost, you’d never notice by looking at the economy.
Marginal and average cost are obviously different, but your example of business fliers is not relevant. Business fliers aren’t paying for their flights, but do often get to choose which airline they take. If there is one population that pays for their own flights and another population that does not even consider cost, it would be silly not to discriminate whatever the relation between marginal and average cost.
The businesses are perfectly capable of choosing not to pay for their employees flights. The fact that they do, and that they don’t consider the costs, shows that their willingness to pay is much higher than the marginal cost. If it wasn’t for price discrimination, consumer surplus would be high, and a large amount of value produced by the airlines would go towards the consumers.
Are high-speed trains natural monopolies? That is, are the capital costs (e.g. rail lines) much higher than the marginal costs (e.g. train cars)? I think they are, and if they are considering the consumer surplus is important, but if they’re not, then it doesn’t matter.
What marginal cost are you referring to here? If it’s the cost to the airline of one butt-in-seat, we know it’s less than one fare because the airline is willing to sell that ticket. And this has nothing to do with average cost. I think you’ve lost the thread a bit.
What I mean is that, if everyone payed what people who travel for pleasure pay, then people travelling for business would pay much less than they’re willing to, so the amount of value airports produce would be a lot less than what they’d get. If they charged everyone the same, either it would get so expensive that people would only travel for business, even though it’s worth while for people to travel for pleasure, or it would be cheap enough that people travelling for business would fly for a fraction of what they’re willing to pay. Either way, airports that are worth building would go unbuilt since the airport wouldn’t actually be able to make enough money to build it.