Valuation of strategic network flexibility in development of toll road projects

A reliable, cost-effective and safe transportation system is essential to economic growth. To keep pace with demands for network capacity, revenue-generating projects are increasingly being used to complement the current procurement practices and lessen the pressure on public finances. In such transportation networks where there exists a mix of free access links and links with user fees, network interconnectivity is an important component of project valuation. A bilevel stochastic recourse model for valuating network flexibility is formulated. A key component of the model is consideration of network-based managerial flexibility in context of the upper level project valuation objective and the lower level network user equilibrium solution under demand uncertainty. The results from a test network, for which a closed form solution is possible, indicate that the value of network flexibility directly depends on initial network conditions, variance in future travel demand and toll pricing decisions.