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MODERATOR'S ADDRESS ON ECONOMICS AND REGULATION ANN F. FRIEDLAENDER MASSACHUSETTS INSTITUTE OF TECHNOLOGY Let me begin by discussing our views on the allocation of funds and the role of university research. In this connection, I was struck by the split in the panels between those who wanted to set up specific budget priorities in terms of allocation of funds and those who did not. Our panel came down very strongly on the side of those who did not. In fact, we had a very difficult time even getting our panel members to give us some sort of a rank ordering because they felt that proposals should be judged on the merits rather than on the subject matter. So, as economists who teach our students that we should be doing constrained maximization, we were clearly unwilling to do it our- selves. Turning now to the question of the proper role of the universities, I think that there may be some divergence of opinion between our panel and, particularly, the panel on social and behavioral sciences in that we felt very strongly that the primary role of the universities is in the area of conceptualization. As university professors, we should be talking about how we can design an attack on problems, about what data should be gathered, and perhaps we should set up relatively small-scale studies. But in terms of amassing large amounts of data, synthesizing that data, and so forth, at least we find that economics graduate students are generally very bad at that. Thus, our comparative advantage is not in large amounts of data manipulation but is much more in conceptualization. On substantive issues, listening to the discussions, I heard some common themes and also, perhaps, some areas of conflict, or at least of differences of emphasis. Certainly the major common theme was the issue of equity and distribution. While our panel ranked issues of equity and distribution third in terms of priorities, the top three priorities were very closely ordered, and we felt very strongly that questions of equity must be considered (wha? are the impacts of various policies and who is impacted?). The other two panels that addressed the issue of equity, the socio-behavioral sciences panel and the Panel on Planning, Implementation, and Operations, tended to discuss that issue in the context of cost- benefit analysis. But clearly the issue is broader than that; and if we 69
are addressing policy, it is imperative that we know who gains, who loses, and what methods of compensation can be developed to make changes in policy palatable. An issue that relates to equity, which we discussed but might not have brought out quite as much as we should have, lies in the area of financing. We believe that economics has a lot to say about problems associated with financing investments. Clearly, questions of equity and of pricing and financing investments are interrelated. Thus the issue of financing and pricing is something that we clearly should address. Another common theme was the question of cost estimation. We believe that there is considerable economic knowledge and ability to pursue the estimation of transportation costs in greater scope than is currently being done. In this connection, there is a clear case for cooperation between the engineers and the economists, each of whom, over the years, have gone their separate ways in terms of systems costing. But now the economists and the engineers are not as myopic as they used to be, and this is an area that could bear considerable fruit in terms of interdisciplinary research. Questions of technology implementation clearly cut across all the panel discussions. The interchange on technology and its imple- mentation between members of our panel and the one on science and technology was instructive. The question of why technology is not being pursued in certain areas is clearly an important problem that is not only related to economics but also to a wide range of disciplines in the social and behavioral sciences. In this respect, I was interested by the concentration of the social and behavioral science panel on urban problems, because questions of socioeconomic behavior are clearly broader than that. If one analyzes, on a very basic level, why certain kinds of technology do not get imple- mented, social beliefs and social views probably play a more important role than economic considerations. Look at the SST. While its economic feasibility can certainly be questioned, systems of beliefs have evolved over the past five years that question its desirability that have nothing to do with economic feasibility. Thus the question of the development of values and beliefs with respect to technology is an area that the sociologist could profitably look at. Questions of performance measures were raised by the panels on science and technology and planning and implementation. This issue clearly cuts across lines. I would like to close on the issue of the role of economic analysis in the urban problem. While our panel tended to downgrade urban questions somehwat, the Panel on Socio-Behavioral Sciences stressed these exclusively, and the Panel on Planning, Implementation, and Operations clearly put a considerable emphasis on these issues. 70
We discussed the priority of research in urban problems considerably and our view was basically that, at least with respect to economics, the easy analysis has been done and the hard analysis is so difficult that it is going to take a long time to do it. In this respect, there was considerable feeling that the single node static kinds of models that have been implemented, really do not get at the problem. While more work is needed on dynamic change in multi-modal cities, this really casts the problem in a fundamentally different way that requires a basic rethinking of the problem. In this connection, I would like to raise an issue with the socio-behavioral sciences panel and question the importance of travel demand modeling. Our panel felt that it is essential to recognize that the work place, the residence, and travel patterns are all simultaneously determined throughout the urban area, rather than between the central business district and a suburban area. This leads, of course, to the problem of the multinodal city. Thus we felt that finding out more about, say, elasticities of demand and modal splits in the interest of models that may be fundamentally misspecified, because of assumptions that the work place or the residence is set, is probably not very useful. Thus in this respect, our panel probably did have a difference of opinion with the Panel on Socio-Behavioral Sciences. The other reason why we tended to downgrade urban economic analysis is that the problem of the cities is fundamentally not a trans- portation problem. The problems of race, the problems of the flight from the cities by residences and businesses, and the resulting financial problems of the cities are probably not going to be helped or changed very much by the nature of the transportation structure or network. Thus our panel felt that, in terms of economic analysis, the greater payoffs lay in the areas of intercity transportation and analyzing the way markets work rather than in urban areas as such. I would be interested in hearing from other panels on these questions. 71
