Abstract
The rising price to build transport infrastructure poses a challenge to governments. Our paper analyzes a period between 2005 and 2017, during which the price of highway construction increased by 68% on average across our 40 analyzed states. We consider six potential explanations for this increase: (1) labor compensation; (2) material input prices; (3) demand for higher quality roadways; (4) market concentration; (5) urban vs. rural roadway mileage; and (6) relative spending on maintenance and rehabilitation. After testing for possible heteroskedasticity, serial correlation, and endogeneity, this paper uses fixed-effects and random-effects models to evaluate the impact of these six factors on highway construction price growth. The results show that highway construction prices are largely influenced by changes in labor and material input prices as well as shifts in demand for higher quality roadways. The analysis suggests the presence of Baumol’s cost disease, a phenomenon in which labor compensation growth outpaces productivity growth, leading to price increases. This finding implies that the price to deliver highway infrastructure will continue to rise in accordance with increases in labor compensation unless significant productivity gains are achieved in the future. The results of this work provide new evidence to explain the rising prices to build highway infrastructure.
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Data Availability Statement
Some or all data, models, or code that support the findings of this study are available from the corresponding author upon reasonable request.
Acknowledgments
Financial support for this research was provided by the Natural Sciences and Engineering Research Council of Canada Discovery Grant and Undergraduate Student Research Award programs. We want to thank the editor, associate editor, and three anonymous reviewers of this manuscript for their helpful feedback. Dr. Alan Russell and Dr. David Gillen at The University of British Columbia reviewed previous versions of this manuscript. We are grateful for their helpful suggestions.
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Journal of Management in Engineering
Volume 38 • Issue 4 • July 2022
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© 2022 American Society of Civil Engineers.
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Received: Aug 24, 2021
Accepted: Mar 1, 2022
Published online: Apr 27, 2022
Published in print: Jul 1, 2022
Discussion open until: Sep 27, 2022
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