Flexibility of Transport Choice in a Real-Option Setting: An Experimental Case Study

We undertake an experimental study about road-hauliers’ choice between railways and roads. If road hauliers choose to load their truck on a train, they are not able to switch to using the road again until they reach the end of the line. On the contrary, highway choice is flexible in that the road haulier can change road at any time. Building upon the irreversibility of one of the two choices, we build a model where traffic levels are risky using both infrastructures. In the model, we find that hauliers’ choices depend upon the infrastructure price for railways and on the information level obtained by the haulier during travel. The flexible option is more valuable the more informed the agent is about traffic levels. These theoretical predictions are tested by implementing two experimental treatments. In the first, agents gain no information during their travel; in the second they become perfectly informed about traffic conditions during the travel. Importantly, experimental payoffs are calibrated upon transport data about time and operating costs and infrastructure tariffs in France. From the experiment, we find that more risk averse agents assign more value to the flexible option. The second result is that subjects overreact to infrastructure price changes. We observe that, except at very low price levels, subjects tend to choose the flexible option more frequently, even when it is suboptimal. ♣ We thank two anonymous referees for their valuable remarks and suggestions. All errors remain our own. 2 The results are the following: as the model stands, price levels and information level are important explanatory variables of choice. The higher the price is for railways and the higher the information is, the more subjects give value to flexible option (highway), especially if subjects are risk averse. The second result is that subjects overreact to infrastructure price modification. We observe that, except for low levels of price, subjects tend to choose the flexible option more frequently, even if it is suboptimal. NB: instructions of the experiment and data are available on http://sites.google.com/site/laurentdenantboemont/