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SWUTC Ph.D. Candidate Assistantship Project Description

Real Options Analysis to Value Managed Lanes

University: Texas A&M University

Principal Investigator:
Sunghoon Lee
Zachry Department of Civil Engineering
(979) 845-9875

Faculty Supervisor:
Mark Burris
Zachry Department of Civil Engineering
(979) 845-9875

Funding Source: USDOT Funds

Total Project Cost: $36,279

Project Number: 600451-00036

Date Started: 9/1/13

Estimated Completion Date: 12/31/14

Project Summary

Project Abstract:
Many studies of existing Managed Lanes (MLs) have concluded that the vast majority of travelers use MLs only occasionally. In this case, benefits estimated in the Benefit-Cost Analysis (BCA) procedure of the MLs may be small because it only estimates the actual use benefits. However, MLs could provide a choice opportunity as a backup (which can be interpreted as an option use value) for travelers even when they do not use MLs. MLs give the flexibility of travel decision making such as a time of
departure choice in the previous example, and travelers can use MLs depending on their unusual situation (e.g. unexpected congestion and hurried situation). Thus, it is obvious that the value of a freeway with MLs is different from the value of a freeway without MLs even if all travelers on the freeway do not intend to use the MLs. However, this option use benefit of MLs has not been considered. This may cause underestimation of benefits of MLs and hinder implementation of them to provide added capacity and to manage traffic congestion. Besides, judging from empirical discrepancy between willingness-to-pay (WTP) survey of MLs and actual usage (i.e. even though survey respondents express willing to use MLs at a specific toll price, they sometimes do not use MLs at that price.), travelers highly recognize benefits of MLs rather than benefits that can be obtained from the actual use of MLs.

The results of this research could greatly improve understanding of the value of these MLs. In addition, the methods will be developed could be a proper method to estimate the option use value of MLs. Ultimately, the methods and results could contribute to better estimate benefits of MLs in the BCA procedure.

Project Objectives:
The main purpose of research is to evaluate the option use value of MLs by examining each traveler’s utility when a traveler uses either the MLs or the GPLs using the revealed preference data.

Task Descriptions:

Task 1Review of Literature

Task 2Develop Methodologies

Task 3Analysis of the Data

Task 4Valuation and Application of Developed Methodologies

Task 5 – Prepare Final Report