Cornelia Dean in the NYTimes about two weeks ago:
Already, Highway 12 floods repeatedly and is often cut by storms. Maintaining it “is totally a lost cause,” said Stanley R. Riggs, a coastal scientist at East Carolina University who is an author of a new book, “The Battle for North Carolina’s Coast,” which describes in depressing detail the difficulties of keeping the road open. “It will bankrupt the state,” he said. ...
But people who live and work on the Outer Banks say abandoning the road would make life impossible. ...
According to a 2011 state report, coastal tourism brought $2.6 billion to the state’s economy in 2009, supporting 50,000 jobs.
“We have an obligation to keep this access in place,” Jerry Jennings, a district engineer with the transportation department who had overall charge of the road repairs, said in October, as he watched crews put the finishing touches on the $11 million-plus repair projects he described as temporary fixes.
He added, “Our employees, fortunately or unfortunately, have a lot of experience dealing with Highway 12.” ...
The state has moved the highway itself four times since the 1950s, said Dr. Riggs of East Carolina University. His book offers a “minimal estimate” of $93 million for the cost of maintaining it since 1983, a figure that does not include the new work.
While I acknowledge that it seems silly to rebuild NC 12 over and over again, and personally I like a good ferry ride, looking at the numbers makes it seem fairly sensible. Here is what I said on December 15:
... maintaining N.C. south of Oregon Inlet will cost between $427 million and $604 million. According to the North Carolina Department of Commerce: "Domestic tourism in Dare County generated an economic impact of $834.29 million in 2010." Hyde County adds $30 million more. Applying some ad-hoc assumptions, 50% of spending is due to out of staters and 50% of that is south of Nags Head, then the annual benefits of having a road down the Outer Banks to North Carolina is about $216 million (of course, from a national standpoint the tourism benefit is $0 as those dollars would flow elsewhere without N.C. 12). The payback period (to NC) on road building looks to be about 3 or 4 years.
[Note that the quantified benefits in the NYTimes piece are seriously overstated and the quantified costs are seriously understated. This is odd in since the overall theme is that the economic decision to rebuild is a bad one.]
Pushing my earlier back-of-the-envelope further, let's say that between 10%-50% of Outer Banks tourism revenues is from out-of-staters and between 10%-50% would vanish if ferries replaced Highway 12. The upper bound benefit is $216 million annually, the lower bound is about $8 million. The lower bound benefit and the upper bound cost would make maintaining NC 12 a bad idea, in terms of economic efficiency.
Of course, these assumptions are just that, and best case / worst case analysis is just that as well. A more involved sensitivity analysis should give us a better idea of where the net benefits might land given these uncertainties. Conducting a Monte Carlo simulation with random draws over uniform distributions of benefits and costs and assuming the new NC 12 lasts 10 years, yields average [95% confidence interval] net present value of $28 [-425, 835] million (r=7%) and $157 [-369, 1031] million (r=3%). While the net present values is likely to be positive, there is a 40% (r=3%) and 50% (r=7%) chance that the net present value is negative.
My assumptions could use some backing up with empirical evidence. There must be an estimate of how much Outer Banks money comes out-of-state somewhere. A stated preference study that asked Outer Banks visitors if they would choose alternative destinations if they had to ride a ferry instead of being able to drive NC 12 would provide an estimate of the second uncertainty.
Hat tip: Stand-up economist.
