Influence of Demand-Quality Interrelationships on Optimal Policies for Stage Construction of Transportation Facilities

The time staging of investment decisions for transportation facilities has generally been analyzed using models which assume a complete independence between transportation level of service and demand for the use of the facility considered. Through the use of a dynamic optimal control model, we analyze the implications of explicitly considering the interrelationship between level of service and demand on the time staging of optimal investment decisions. This analysis leads to a more general time staging decision rule than those previously proposed in the literature; an economic interpretation of that decision rule is given. Second order conditions are developed for various cases of practical significance. Finally, a numerical example is introduced to illustrate the dramatic effect that demand-quality interrelationships can have on the optimal time staging policy.