University of California Transportation Center

This paper examines the link between highway congestion, labor productivity, and output in a sample of California counties for the years 1977 through 1987. A county production function is modified to include both the value of each county's highway capital stock and a measure of the congestion on each county's highway network. This allows a comparison of two distinct policies -- expanding the highway stock versus reducing congestion on the existing stock. The productive effects of congestion reduction are significantly positive in five of six regression specifications. The effects of expanding the highway stock are more suspect, and are insignificant in what are arguably the preferred specifications. Overall, the results provide evidence that efficiently using the existing highway network is more likely to yield economic benefits than expanding the highway stock.