United States Department of Transportation
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Forecasting the Demand for Privatized Transport: What Economic Regulators Should Know and Why
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2001-09-01
[PDF-2.85 MB]
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Abstract:While public-private partnerships in the delivery of transport infrastructures and services is expanding, there is also growing evidence of the lack of appreciation of the importance of demand forecasting in preparing and monitoring these partnerships. This often gives an opportunity to the private operators of transport services to complain, soon after taking over a business, about overestimates or underestimates of demand based on the initial information provided by governments. It tends to result in an excuse for the private operators to try to renegotiate the contract to improve its terms. The lack of focus on good demand forecasting in the context of an increased role of private operators and investors in the transport sector may be somewhat counterintuitive. In the context of more specific evaluations of projects--such as high speed trains, subways or new airports -- or in the context of important policy decision regarding modal choices--, many planners have also developed disaggregated demand models capable of generating the kind of information much closer to what is needed to meet the forecasting requirements of a project financier, a privatization commission or a transport economic regulator. There have been impressive improvements over the years to model demand and increased accuracy in identifying and assessing the relative importance of the various factors explaining demand, including modal shifts resulting from policy changes. It makes sense to compare the tolls or tariffs calculated from the cost side with these rough estimates of the willingness to pay for some services or with the value of time revealed by the post-mortem analysis of comparable projects. The main purpose of this paper is to guide regulators though this very technical and somewhat foggy field of demand forecasting to allow them to make the most of new opportunities to collaborate effectively with specialists. The goal is not to provide a detailed technical introduction but rather to provide a ?light? overview of the main issues a regulator needs to be aware in demand forecasting. To achieve this objective the paper is organized as follows. First, it discusses the changes and challenges brought about by the privatization decision. Privatization introduces a number of perverse incentives in the process that leads to strategic demand forecast used in the evaluation of assets by privatization teams. Next it provides a checklist of the most common problems with demand forecasting, highlighting the main reasons why demand forecasting matters in practice. Section 4 then provides a brief overview of the main techniques. Section 5 provides some sector specific illustrations. Section 6 provides some practical tips as how to start thinking about demand in the context of regulation. Section 7 concludes. References, appendix, figures, tables, 36 p
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