Optimal infrastructure reinvestment in urban rail systems: A dynamic supply optimisation approach

Abstract

The state of infrastructure in many developed countries around the world is an increasingly pressing issue, with mounting costs the longer repairs are deferred. In today’s rapidly urbanising world, the urban rail network is particularly critical, since infrastructure failures can have severe economic consequences for both the operator’s finances and user time costs. This paper thus provides a system-level model of welfare-oriented supply optimisation that integrates asset management with the literature on optimal pricing and capacity provision. Using a simulation approach and calibrating with London Underground data, this paper delivers three key contributions. First, the economic efficiency of long-term capital planning is highlighted, with up to an 87% welfare gain when comparing a 40- versus 5-year planning horizon. Second, in general, the longer the planning horizon, the higher the annual welfare, demand, asset condition, fare and supply, in the steady-state. Third, the analysis explores why policies in reality diverge from the welfare optimum: we show that election cycles can have a detrimental effect, with increased asset neglect and volatility in spending. Economic efficiency improves in the short-term at the expense of the long-term; significant intervention is needed to break this downwards trend, as also reflected in various rail systems’ histories.