Scale and Condition Economies in Asset Preservation Cost Functions: Case Study Involving Flexible Pavement Treatments

Abstract

Estimates of planning-level treatment costs are vital inputs for preservation project budgeting, prioritization, and programming in highway asset management. However, with the paucity of analytical research on highway asset preservation costing, agencies have resorted to the use of average costs. However, average cost values fail to adequately accommodate the influence of cost factors such as project size and asset condition at the time of the preservation treatment. In addressing this issue, this paper explores the efficacy of different mathematical specifications, including the Cobb-Douglas form and a variety of other nonlinear forms, for developing treatment cost functions. The paper shows how flexible formulations could be used to specify the response variable in order to avoid unduly restricting the models and to yield cost estimates that are more reliable compared to average costs. The paper shows how to investigate the direction and strengths of scale economies and condition economies in highway asset preservation costs using mathematical forms that allow for determining the partial derivatives of treatment cost with respect to asset dimensions and pretreatment condition. The paper demonstrates its concepts by using data on flexible pavement preservation treatments at a midwestern state highway agency.