Mar 29, 2010

Opportunity cost of cars vs. trains: The Case of Switzerland and the United States

This is a follow up to the post from Mar 25, 2010: Is the Geneva-Lausanne train ride really expensive?

Take it as given that the opportunity cost of train is car. (obviously, as by def. the next best alternative ;)

Assuming that on average you can get 10 km on 1 litre of fuel, in Switzerland at the current gas prices:1km = 0.151 USD and in the US, 1km = 0.078 USD.

At the current exchange rate this is more or less equivalent to the price in CHF, namely: 0.16CHF and 0.08CHF respectively.

Now we can explore the train costs with respect to car costs.

Paying tribute to old mate David,
"Double, double toil and trouble;
Fire burn, and caldron bubble." and ta-da!

In USA, the opportunity cost of 1 km on train cost is 0.66 CHF of 1 km by car but only 0.47 CHF of 1 km by car in Switzerland.

Of course, if you are a true baller boasting a Hummer, then the above may no longer apply.

However, as recession hit hard the USA, and keeping in mind that in 2000, 57% of households owned 2 or more cars, then assuming slightest amount of rationality within the jungle that we are living in, we can expect that people tried to make more trips with the environmentally friendly, fuel efficient cars of the wives... In this sense, the vehicle ingredient of the above calculations is no longer as heterogeneous, and shouldn't bias the USA-CH opp costs results.

Optimist's bottom line: Swiss trains are a good deal
Pessimist's bottom line: Swiss cars are "uber-piggy-bank-breakers


Pierre-Louis said...

This reminds me of this sentence from Tiwtter found by Tyler Cowen: "i've found smartphones increase the opportunity cost of driving, tilt toward public trans. just me?"

TomasH said...

Looks nice, but to make it more convincid U shd include the depreciation of capital (ie. your car).
Also i'm not sure about the interpretation of the 2nd table. U R taking the relative price of the two means of transportation, shouldn't U take the difference and then scale it by some PPP measure? The opp. costs should also include time, ie. is a car faster than a train?
PL - paper idea? :-)

TomasH said...

regarding my 2nd point, i'm taking it back, i think it's nice the way it is now. i'd only keep it in relative terms (not convert in to chf and usd). ie. train is x% cheaper than the second best alternative (car) in switzerland vs. y% cheaper than the second best alt. in the US. depending on what number is bigger U could say that trains in CH or US are cheaper...
(maybe taking it a bit too seriously, but it was bothering me and i need to focus on my thesis!)