The aim of the paper is to provide Ministry of Transport staff with a framework for analysing issues, starting not with analytical tools but with an openness to thinking about markets within the transport sector. Some markets work better than others in helping a country use its resources efficiently. Thinking about how well a market is working should help decide where to be ‘light handed’ and where to concentrate the Ministry’s policy work, thus providing a link between high-level objectives and the work programme. The framework is followed by a discussion of different analytical tools.
Some transport markets relate to infrastructure - roads, ports, airports, railways. Some relate to ‘vehicles’ - cars, buses, bikes, ships, planes, trains. Infrastructure has a fixed location and economies of scale. Vehicles share the infrastructure and can produce congestion.
In roughly descending openness to competition we have:
- relatively open markets: road freight, long-distance bus services
- contestable markets (few competitors but a threat of entry): domestic aviation, some international aviation, shipping
- contestable monopolies: urban public transport (periodic re-tendering of monopoly routes)
- regional monopolies: airports, ports (but with some inter-port competition)
- monopolies: roads, air traffic control
- markets with restricted access: certain international air routes
- ‘market failure’: urban traffic congestion.
Markets that work well efficiently convey information and provide performance incentives. But markets can have problems dealing with externalities (for example pollution and congestion costs imposed on others), anti-competitive practices, large changes (for example, the Canterbury earthquakes), wider impacts (for example, interaction between transport and land use, and network effects) resilience needs and extended time horizons.
A first step in analysing a transport issue is problem definition. Careful thought about a problem will improve or even change the way it is understood. In some cases, the problem may turn out to be less important than had been originally thought – for example, if there is a self-correcting mechanism or if favourable changes are happening in the external environment.
Next, consider what is there now. What is the market? Is it working well or can it be made to work well?
If it cannot, then consider what levers can be used - or used less - to help achieve the objectives. The main ones, moving broadly from lighter interventions to help markets work, to heavier ones that partly substitute for markets are:
- information to help markets work better - for example, the Ministry’s transport statistics
- education - for example, safety
- monitoring of performance - for example, the main airports
- regulation - for example, for safety
- operating subsidies - for example, public transport
- public investment - for example, roads and public transport
- public ownership - for example, roads, KiwiRail, Airways Corporation and most ports.
Possible responses to problems include the following:
- making better use of what we have already - for example, encouraging avoidance of peak travel, ramp metering to manage motorways, better traffic light phasing
- small investments in easing choke points
- leaving it to the private sector to respond to changing incentives - for example, at ports and airports
- better designed regulation
- doing nothing (which is sometimes better than the alternatives).
Ministry analysis generally compares the benefits and costs of proposed policy interventions. Where there is enough data, cost-benefit analysis should be used.
The final steps are to produce policy advice based on the analysis, and later to review the outcome and draw lessons from it.
Analytical Framework diagram