Is the New Jersey tunnel project too big to succeed? The economist’s view.

Anyone who commutes in to New York from New Jersey knows that the smallest glitch can throw the entire rail system into chaos, delaying 1,300 trains worth of people. Many argue that there is an urgent need for a new rail link between the two states, but viable plans to build such a thing have yet to materialize.

Here's the economist's outlook on the problem: While a new rail link would provide positive returns for society, neither private nor public institutions are properly incentivized to make it happen.

Traffic on the current rail links, two 100 year old tunnels, is at full capacity and demand will only increase over time. Lawmakers and analysts dispute the cost of building a new tunnel, but it's generally estimated to be in the neighborhood of $10 billion. It will take decades to recoup the investment. This type of massive-scale infrastructure is beyond the scope of any corporation, but not for the simple reason of scale. Consortiums of private institutions can raise massive amounts of money. But can you imagine anyone in the private sector investing in a project that may not earn money for several generations?

More important is that the project would have many positive "externalities," or societal benefits that no owner can capture and charge for. If 100 people need to get from New Jersey to New York City every day, society benefits from them sitting in a single train, rather than 100 automobiles: less pollution and less congestion. But the owner of the train or the tunnel it goes through cannot charge one person for the value of slightly cleaner air. Only a government can internalize the value of clean air for all.

While the government can value something like clean air, it is not good at valuing long term investments. In the same way that corporations are obsessed with daily stock prices and quarterly earnings, politicians are obsessed with monthly poll numbers and biennial elections.

In spite of all these obstacles, a new rail link was very close to becoming a reality in 2010 until New Jersey Governor Chris Christie summarily shut down the construction of a new tunnel. At the time, he cited New Jersey's responsibility for the tunnel and any cost overruns, but the Government Accountability Office debunked both claims last week in a new report. A new effort, called Gateway Project, is now underway, but it is currently very preliminary.

Regardless of whether the project was optimal for New Jersey, there were two clear short term benefits for Christie in cancelling the project: he was able to shine with the Republican Party by cutting spending. Cutting this project was a catalyst in his continued rising status in the Republican Party. New Jersey redirected the money set aside for the tunnel toward roads, allowing it to keep its second-lowest-in-the-nation gas tax.

There's only one clear solution: If voters show themselves capable of punishing politicians for maximizing short-term benefits at the cost of avoiding beneficial long term investments. It is not a foregone conclusion that they cannot. Many of those voters take the train.

David Rothschild is an economist at Yahoo! Research. He has a Ph.D. in applied economics from the Wharton School of Business at the University of Pennsylvania. Follow him on Twitter @DavMicRot and email him at

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