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Wilbur Smith Associates Report on

Comprehensive Traffic and Toll Revenue Study:


Windsor Gateway Project

A Critical Evaluation

Submitted to

Sierra Club Canada

Submitted by

Econometric Research Limited

September, 2010
Executive Summary

Econometric Research Ltd (ERL) was retained by the Sierra Club Canada (SCC) to review the
report prepared by Wilbur Smith Associates (WSA) entitled "Comprehensive Traffic and Toll
Revenue Study-Windsor Gateway" dated January, 2009 (WSA 2009) and its Appendices.

The 2009 WSA report was prepared pursuant to a Request for Proposals issued by Transport
Canada in 2008 to provide a traffic and revenue forecast for use in the future procurement of a
public-private partnership for the new Detroit River Crossing. The WSA 2009 report indicates
that it drew upon previous studies, being the Planning and Needs Feasibility Study, the Detroit
River International Crossing Study, and other transportation modeling studies that were
conducted further to the environmental process. These previous studies were all considered in
justifying the need for the project.

ERL also reviewed the May 2010 Appendices of a later WSA Report, produced for the Michigan
Department of Transportation, for the new crossing. The May 2010 Appendices provided one
additional year of data points ending in 2008, as compared to the January 2009 Appendices,
which ended in 2007. The May 2010 report adjusted forecasts downward in 2009 as the
predictions from the earlier work had not borne out, though still projected continuous upward
growth after that point. But for this one minor difference between the Appendices, they are
identical in their methodologies and assumptions, and our conclusions apply equally to both.

Specifically ERL was tasked with evaluating the travel demand forecasts of the Report and has
assembled a team of specialists to undertake this assignment consisting of Dr. Atif Kubursi
(Professor of Economics, McMaster University and President of Econometric Research Limited),
Dr. Pavlos Kanaroglou (Professor and Director of the School of Geography and Earth Sciences,
McMaster University and Director of the McMaster Institute for Transportation and Logistics
(MITL)), and Dr. Abe Mouaket (Transportation Engineer and President of Innovative Methods).

The ERL team focused on the structure of the travel demand model used, the data selected for
estimation and projection exercises, the assumptions made, the exact specification of the various
equations, the regression techniques chosen, the estimated results and the forecasting scenarios.

The analysis and review considered many aspects of the WSA study and reached a number of
conclusions.

What emerges from our review is that there appears to be an attempt by the WSA Team to
rationalize an investment of several billions of dollars in a new crossing that is anchored on
optimistic forecasts of crossing volumes in the frontier region. The WSA forecast ignores the
serious structural changes of the decade of 2000-2010, selectively chooses independent
predictive variables with positive historical trends and eliminates other relevant variables from
the forecasting equations which could introduce dampening effects.

A brief review of the analysis and conclusions reached are summarized below:

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• In any projection or forecast, the past is typically considered as the best guide for the
future. Time series data are examined using regression analysis in order to identify and
quantify the systemic determinants of the dependent variables of interest during the
period for which data exists. The crucial dependent variables in WSA Report are: The
passenger traffic volumes and the commercial vehicle volumes at the three existing
crossings in the Windsor-Detroit-Sarnia area the Ambassador Bridge (AB), and
Windsor-Detroit Tunnel (WDT), and Blue Water Bridge (BWB).

• The development of a new crossing in the region needs to be contingent on a forecast


that shows that traffic volumes in the future are likely to be greater than the existing
traffic capacity of the current three crossings.

• The new crossing will have to be based on a strong stated preference for a crossing that
links more quickly to the highway network on both sides of the Detroit River and that it
is cost effective.

• The WSA team has developed its work with these objectives in mind. Unfortunately, the
past did not cooperate well with their plans. The developments in the region in the past
decade have been a tale of declining traffic, both for the passenger and for the
commercial vehicle components. These declines were not exclusively conjectural
(cyclical); they reflect some deep structural developments and some unique changes that
are not expected to change course easily or quickly. These structural and unique changes
can not be ignored; they need to be worked into the model and into the future
projections. Unfortunately most of these changes are ignored by WSA. Most of their
future projections are overly optimistic and ignore the difficult decade of 2000-2010.

• A number of factors have contributed to the reversal of past growth performance


between 2000 and 2008. While some of these factors may be dismissed as transitory and
cyclical in nature, quiet a few others are more permanent structural factors and could
become ingrained into the normal processes of the system.

• Several socio-economic significant events have occurred since 2000 that have greatly
affected the volumes of car and commercial traffic observed on the crossings between
the US and Canada and particularly in Detroit-Windsor corridor. Some of these were
recognized by the WSA team, but many were not considered; and in all there is the
presumption that their negative influences and impacts may not last long.

• A short list of these socio-economic significant events, with our expectation that they
will continue to contribute to declining traffic volumes, includes:

o Opening of Detroit Casinos – The opening of the MGM Grand Detroit Casino in
July of 1999 effectively ended the need for Detroit and other US residents to cross
the border to gamble at Casino Windsor, which started operations in 1994. In
addition, two new casinos have opened in Detroit. It is not surprising that the

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opening of the new Detroit casinos has had a noticeable, if not permanent impact
on discretionary traffic volumes;

o The Stubborn Recession – The economy took a significant downturn in 2000


after very strong growth in the 1990s, starting from the “dot-com” debacle, then
the Enron collapse on December 2, 2002, and then the sub-prime fiasco, which
has cascaded to bank failures and the economic collapse of countries around the
world. Historically high levels of unemployment over the prevailing national
averages were registered in Detroit and Windsor. While the attraction of Detroit
as an employment center for Windsor residents had remained stable until 2006, it
quickly contracted thereafter and many Canadians and local residents lost their
jobs. The recovery is still slow and particularly in the job market. The prospects
of a job creating recovery has now been pushed further into the future and there
are serious doubts that the region will ever recover fully;1

o 9/11, the Iraq War and the Afghanistan War – While traffic decline began to
occur in 1999, the aftermath of the September 11, 2001, and two related wars, has
seriously impacted the ease with which travelers can cross the border and has also
depressed the propensity for international discretionary travel;

o SARS and Swine Flu epidemics in Toronto – In 2003, the city of Toronto, a
popular tourist destination for Americans, was one of several global locations of
the highly-publicized epidemic. Impacts on tourism and vacation trips across the
border were immediate and will have some long lasting impacts;

o Appreciation of the Canadian dollar – In 2007, the value of the Canadian dollar
hit parity with the US dollar for the first time since the mid- 1970s and for a short
while it even exceeded parity reaching $1.10 US per one Canadian dollar. While
the rise in the value of the Canadian dollar vis-à-vis the US dollar makes travel to
the US more attractive for Canadians, it has the opposite effect for travel to
Canada for Americans. From a work commuting perspective, the incentive for
Canadians to work in the US will decrease and Canadian exports to the US will
rise in price and become less attractive. On the other hand, Canadians will be
induced to increase their cross border shopping and importation of US goods;

o Passport requirement – The introduction of a passport requirement in mid 2010


on cross border traffic is turning out to be a major barrier to travel between the
two countries. This is particularly so given the low propensity of US residents to
acquire this document. It is believed that that no more than 22% of US citizens do
have a passport and are not likely to acquire one soon;2

1
See US Bureau of Labor Statistics, Press Release http://www.bls.gov/news.release/empsit.nr0.htm and Paul
Krugman, “The Return of Depression Economics and the Crisis of 2008.” New York Times, April 18, 2008
2 Testimony of Frank E. Moss, Deputy Assistant Secretary for Passport Services, Bureau of Consular Affairs: “I
would like to note that even though “only” 68 million Americans have passports………” in
http://travel.state.gov/law/legal/testimony/testimony_2922.html.

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o Increase in gasoline prices – While gasoline prices have fluctuated widely, there
is a general escalating trend. This is all the more likely with the increased
realization that we are not adding to proven reserves what we are depleting.
There are also the looming emission charges and carbon taxes. Transportation
volumes are quite sensitive to gas prices and the expected rise in these prices as
world wide scarcity rises suggest that crossing volumes may decline in tandem
with these expected increases in gas prices;3

o Technological Change – The Internet has reduced measurably the cost of


communication so much so that it is now the dominant means of human
interaction. The increased use of the Internet and the continuous decline in its cost
has and will continue to boost its competitive attractiveness over traditional
transportation modes of interaction. The increased share of services in total GDP
is another factor that would continue to decrease the intensity of transportation;

o The Disappearing Middle Class – Income and wealth in both Canada and the
United States have increasingly gravitated into the hands of the few rich. The poor
have become poorer and the rich richer. The middle class suffered major losses in
real income whereas the top 20th percentile on the income distribution scale has
expanded its income and wealth shares.4 The rich typically fly and the poor rarely
drive. Passenger cars are generally owned and driven by the middle class. As
globalization has been associated with income and wealth polarization, the middle
class has shrunk;5

o Environmental Issues - Increased awareness of the impact of transportation on


the environment is likely to convince people to travel less and to use other less
intrusive modes of transportation (e.g., trains). The implications of environmental
awareness bolstered by emission taxes, carbon charges, etc. must be factored into
any forecast of future traffic volumes in any jurisdiction.

• Many of the factors listed above were not considered important and were therefore not
included in the set of independent variables.

• The impacts of these events on annual crossing volumes have already become
noticeable. Since 2000, passenger car traffic volumes have decreased by 35% at the
Ambassador Bridge, 48% Detroit-Windsor tunnel, and 22%, at the Blue Water Bridge.
The continuation of these negative impacts on future volumes is quite likely as many of
these structural factors continue to exert their influence. But WSA did not bother to

3
Gene Coperman in http://www.ccs.neu.edu/home/gene/peakoil/
4
The US Census Bureau’s measurement of the Gini coefficient, a widely-used indicator of income inequality rose
steadily from a level of 0.388 in 1968 to 0.466 in 2001. See
http://www.census.gov/hhes/www/income/histinc/ie1.html
5
Mode of transport is income determined see
http://www.payscale.com/research/CA/Country=Canada/Salary/by_Method_of_Travel

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include many of these factors in their analysis and forecasts despite the overwhelming
evidence as to their relevance.

• Three separate types of traffic volumes were identified and their growth rates were
estimated. The three types include:

o Passenger vehicle crossings occurring within the same day


o Passenger vehicle crossings with a trip duration exceeding the same day
(overnight trips)
o Commercial truck crossings

• People travel short or long distances for a variety of reasons, whether for commuting to
work, recreation, or other reasons. Many socioeconomic determinants can be postulated
to influence this travel. Typically, same day travel is dominated by work consideration
and this is a function of such variables as income, exchange rates, cost of fuel,
employment prospects, and many other quantifiable or non-quantifiable factors.
Unfortunately the Centre for Spatial Economics (Centre) has selected a small subset of
these factors in its estimation and concentrated on independent variables with upward
trends that biased the forecasts upward.

• The Centre used multivariate regression analysis to quantify these determinants and
projected the independent factors into the future in order to forecast the future volumes of
cross border traffic in the Detroit Windsor region.

• The data used was collected from many sources and many assumptions were used to
generate a time series set for estimation and projection. Many of these assumptions are
arbitrary and unreasonable; they compromised the accuracy and reliability of the data set.

• A short list of these assumptions includes:

ƒ Same day and overnight passenger car travelers’ characteristics of those entering
the US from Canada are the same as for travelers entering into Canada from the
US. This assumption skews the results because there are more short trips for
travelers entering into the US than the US entering Canada, so to use the same
variable skews the results.

ƒ Automobile occupancy rates for both US and Canadian travelers are identical.
This is may not be a critical assumption but it can still bias the results given the
expected escalation in the cost of fuel, the rise in the cost effectiveness of travel of
smaller parties and the different purposes of travelers.

ƒ Non-Canadian/US residents traveling into Canada have the same travel


characteristics as those surveyed. This may be true, but the proportions of these to
the total are too small to make a major difference in the results. It is not correct or
reasonable, however, to expect non-Canadian and US travelers to exhibit the same

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characteristics as those surveyed. They generally travel for different reasons and
purposes than those who were surveyed.

ƒ The Michigan Ontario Border Crossing Survey results of 2000 were used to
generate volume flows and characteristics for later years. The most glaring
inherent assumption was that pertaining to the proportion of commute/work trips
in the survey. These were considered to be representative of that proportion for
the entire year and beyond, which we believe to be an unreasonable assumption.

ƒ The Origin-Destination survey trip purpose data was also used to split the
passenger car traffic for 2008 with an adjustment to account for weekends. The
interim years between 2000 and 2008 were interpolated based on the data in 2000.

• The Centre claimed that multiple possible socioeconomic variables were tested (200
multivariate equations were modeled with permutations of the independent
socioeconomic variables for each same day passenger vehicle crossing purpose) to
determine a statistically significant historical correlation with the border crossing
volumes. However, this appears to be only a claim as the Report and Appendix C do not
report on any of these estimated equations.

• The Centre has chosen to report on only one equation for the frontier and for each traffic
volume type based on the socioeconomic variables that exhibited the best explanatory
power. The Centre did so, based on what it claims as its qualitative and quantitative
assessments of the regression results. This is problematic because only the variables
showing increasing trends in traffic volumes were used while the variables showing any
decreasing trend were ignored.

• The regression results of the first estimated equation show that 91% of the variations in
the same day passenger traffic in the frontier are explained by the combined Michigan
and Ontario employment alone.

o This specification showing one variable explaining this much of the variation of
same day traffic (commute/work related traffic) on its own is subject to many
qualifications. It is typically the case that in a regression equation with missing
variables, one single explanatory variable can easily pick up the implicit
influences of the variations in the missing variables.

o Equally problematic is the fact that the single determinant in the first equation is a
variable that typically displays a positive trend which biases the projections of this
traffic volume upward, without a single negative influence of the type
experienced and reflected in the data on the volumes of passenger same day
crossings after 1999.

• The regression results do not include relevant diagnostic statistics such as the Durbin
Watson measure that would have pointed out whether or not the single variable chosen is
sufficient to eliminate any systematic errors in the residuals. Exclusion of such

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diagnostic statistics would have to mean that there are no other independent variables
needed to improve the regression accuracy or to eliminate any bias in the estimated
coefficient. This cannot be known without the diagnostic statistic.

• A number of key variables were considered to be potential explanatory and predictive


variables for overnight passenger car crossings. These include the populations of
Michigan and Ontario, the employment levels in both of these areas, their real GDP, the
exchange rate and a dummy variable for 9/11.

• The Centre has claimed that different pairings of these variables were tested. But given
the number of observations, it is not clear why pairings of two and not more than two
explanatory variables were used in the regression equations.

• Again the Centre claimed that in the end the greatest explanatory power of historical
overnight passenger car crossings came from the combined populations of Ontario and
Michigan. This variable explained only 68% of the total variation in the dependent
variable. This is not a whole lot in time series regressions.

• The Centre also claimed that none of the other variables explained the brief rise above
and the fall below the long term trend. But this claim was not demonstrated.

• No other functional forms (non-linear) were specified and estimated. The linear structure
used is simply inappropriate as the predicted values diverged markedly from the actual
values. If the real issue is forecasting accuracy, then other statistical specifications should
have been used such as Vector Auto Regression (VAR), Box-Jenkins, ARIMA. We note
that some of the earlier DRIC studies did that with some success and good outcomes.

• Nothing but a positive and continuous trend in the volume of overnight passenger car
crossings can come from the baseline forecasts used in the projections. Despite the
evident fluctuations and the dip in the volumes of crossings in overnight passenger
vehicles in the 2000s, the forecast is for a continuously rising volume of these crossings.
It is true that the slope of the rise is limited but there are serious doubts as to the validity
of using a continuously rising explanatory variable to predict the future volumes when
the past is essentially a truly camel humped distribution.

• The explanatory variables of the volume of commercial vehicle crossings along the
frontier are the turnover of Ontario’s foreign trade and the exchange rate. Both of these
variables are highly significant. The Ontario foreign trade turnover has a t-statistic of
over 29.4 and that of the exchange rate of about 6.

• The adjusted R2 is quite high in this equation and it is without doubt the best regression fit
of all the three traffic components. It is not surprising therefore to see that the actual and
estimated curves are quite close and the predicted volumes tracks well and fully with the
actual data.

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• Given the close relationship between trade turnover and commercial vehicle crossings
and the common patterns they share, predicting correctly the turnover of foreign trade
provides a solid anchor for predicting commercial vehicle crossings. But predicting the
turn over of trade depends on predicting correctly its determinant, which in this case is
the real US GDP growth rate. The projected real rate of growth of the US GDP is a
modest 1% per year for the long term. This does not justify the overly optimistic
projection of the turn over volume of US-Canada trade.

• The same problems alluded to earlier afflict the projections of the independent
(exogenous) variables driving the forecast in the case of future commercial vehicle
crossings. Again the predicted turnover of trade is an upward and smooth trend and it
alone is carrying the brunt of the forecasts of the commercial vehicle crossings. We are
not sure what happened to the exchange rate variable. It was dropped as in other forecasts
on the presumed proposition that its fluctuations are considered to be of a short term
nature.

• The Centre accepted the low real US GDP rates of growth projected by the Congressional
Budget Office, but this acceptance was not reflected in its projections of the trade turn
over volumes that determine the volume of commercial vehicle crossings in the frontier
region.

• The future is uncertain and the projected values are subject to errors. Some are embodied
in the estimated coefficients (with standard errors) and others are about the trends in the
exogenous (independent) variables.

• The Centre has chosen to use an outmoded and now generally unaccepted way to deal
with the future and risks. Using arbitrary pessimistic and optimistic variations does not
help much. Were the investment values at stake in the order of magnitude of a few
million dollars, the use of sophisticated risk analysis may not be warranted. The expected
new investment in the new bridge is in the order of more than $5 billion of which $1.6
billion is Ontario’s share alone and it does not include the federal share of expenditures.
Forecasting errors are quite costly and therefore simple forecasts can not and should not
underpin massive investments of the kind and value expected to be made in the new
crossing.

• We are of the opinion that a full and thorough risk assessment procedure is necessary and
warranted. The current alternative forecasts in the WSA Report are not consistent with
the current standard risk analysis procedures. The latter calls for using the standard errors
in the regression equations and different probability distributions assigned to the
exogenous variables. A standard tool is @RISK which is now widely used and is the
standard tool in this area, but was not used here.

• The “what if” and sensitivity analyses in the WSA Report are not sufficient to deal with
the risks embedded in this massive project and the type of forecasts and analyses
undertaken. There is no way that sensitivity analysis, however useful it may be, can
substitute for the proper risk analysis that should have been undertaken.

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• The stated preferences survey through which data were collected used an orthogonal
experimental design, implying that the independent variables used in the estimated
discrete choice models were uncorrelated. It is not clear to us how the survey participants
were randomly selected for inclusion in the sample. Like any other econometric modeling
activity, a random sample is necessary, if one is to avoid bias in the parameter estimates.
This is not clearly the case in the stated preference survey conducted by Resource
Systems Group Inc. (RSG).

• Apart from the alternative specific constants, all models presented in the RSG Report
used two independent variables: the travel time, or time to cross to the other side, and toll
cost. Although the RSG Report mentions that several other variables were tested, none of
those specifications are presented. In particular, trip characteristics and socioeconomic
and demographic characteristics of the individuals in the case of the private automobile
models should have been used.

• The view of someone who lives far from the area and very infrequently uses one of those
crossings would be very different from that of someone who lives in the area. Also,
valuation of time and toll cost are different for different socio-economic classes. Unless
such variables had no impact on the presented coefficients, then the exclusion of such
variables from the models risks rendering them as mis-specified. At this juncture it is our
considered judgment that they are mis-specified.

• In all of the models presented one of the major drawbacks has been the lack of model
diagnostics. Without exception, the initial and final value of the log-likelihood function is
presented for each estimated model. One can certainly calculate from these values the
overall improvement in the model (ρ2). However, the most often used measure of
goodness-of-fit for such models is the improvement in the log-likelihood function after
taking into account the alternative specific constants. This was not included in the Report.

• Our most worrisome concern here is the use of the stated preference model for prediction
and allocation of market shares among the crossings, which is totally unacceptable.

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Introduction

The Wilbur Smith Associates (WSA) team comprising WSA, IBI Group, Resource Systems
Group Inc., and the Centre for Spatial Economics was retained by Transport Canada in
coordination with the Canada-US-Ontario-Michigan Border Transportation Partnership (the
Partnership) to conduct an “Investment-Grade Level Traffic and Revenue Study” for the new
proposed Detroit River International Crossing (DRIC) within the Windsor-Detroit region. The
Report was part of Transport Canada’s ongoing initiatives to collect and update data and
analyses to support an evaluation of the traffic and revenue potential of the WGBC as part of the
Partnership’s intention to undertake to fund and build the proposed bridge infrastructure.

Econometric Research Ltd (ERL) was retained by the Sierra Club Canada (SCC) to review the
report prepared by Wilbur Smith Associates (WSA) entitled "Comprehensive Traffic and Toll
Revenue Study-Windsor Gateway" dated January, 2009 and its Appendices.

The 2009 WSA report was prepared pursuant to a Request for Proposals issued by Transport
Canada in 2008 to provide a traffic and revenue forecast for use in the future procurement of a
public-private partnership for the new Detroit River International Crossing (“DRIC”). The WSA
2009 report indicates that it drew upon previous studies, being the Planning and Needs
Feasibility Study, the Detroit River International Crossing Study, and other transportation
modeling studies that were conducted further to the environmental process. These previous
studies were all considered in justifying the need for the DRIC.

ERL also reviewed the May 2010 Appendices of a later WSA Report, produced for the Michigan
Department of Transportation, for the new crossing. The May 2010 Appendices provided one
additional year of data points ending in 2008, as compared to the January 2009 Appendices,
which ended in 2007. The May 2010 report adjusted forecasts downward in 2009 as the
predictions from the earlier work had not borne out, though still projected continuous upward
growth after that point. But for this one minor difference between the Appendices, they are
identical in their methodologies and assumptions, and our conclusions apply equally to both.

Specifically, ERL was tasked with evaluating the travel demand forecasts of the Report and has
assembled a team of specialists to undertake this assignment consisting of Dr. Atif Kubursi
(Professor of Economics, McMaster University and President of Econometric Research Limited),
Dr. Pavlos Kanaroglou (Professor and Director of the School of Geography and Earth Sciences,
McMaster University and Director of the McMaster Institute for Transportation and Logistics
(MITL)), and Dr. Abe Mouaket (Transportation Engineer and President of Innovative Methods).
The CVs of the team members are included as an Appendix to the Report.

The ERL team focused on the structure of the travel demand model used, the data selected for
estimation and projections, the assumptions made, the exact specification of the various
equations, the regression techniques chosen, the estimated results and forecasting scenarios.

ERL recognized right at the outset that the travel demand model used for this Study to forecast
crossing volumes builds upon earlier models developed originally for the Planning/Needs &

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Feasibility (P/N&F) Study in 2000, later updated as part of the Detroit River International
Crossing (DRIC) Study in 2004. ERL also recognized that the model travel forecasts are
premised on a number of sub-models including a corridor growth analysis and several data
collection programs that included traffic counts, origin-destination and stated-preference surveys.
The final model adopted by the WSA study team incorporates the findings and analyses from
these models.

The volumes of the traffic forecasts in the frontier region, however, are at the core of the Study.
They are critical for justifying the need for the new crossing and these are dependent on the
regression equations, assumptions and specifications, and the forecasts and projections of the
independent (explanatory variables) socioeconomic variables driving the future crossings’
forecasts.

A brief review of the critical subcomponent models that were used to make the projections of the
traffic volumes is undertaken with the view of highlighting the key assumptions, data quality, the
structure of the equations, the estimation techniques, the regression results, the derived
projections of the travel demand model components, the constructed alternative scenarios and the
interpretation of the results.

Modeling Process

The WSA team provided in Chapter 5 of the Study a brief description of the models developed
and updated as part of the P/N&F and DRIC studies as well as a general discussion of the data
bases used in calibrating the Travel Demand Model. A few Appendices are devoted to a broader
presentation of these components and as such they form part of our review process.

The existing travel demand model used in the Study was originally developed in 2000 for the
P/N&F study and was then updated for the DRIC study in 2004. The P/N&F regional model was
developed from three pre-existing models: (1) Southeast Michigan Council of Governments
(SEMCOG) model covering southeast Michigan; (2) Windsor Area Long Range Transportation
Study (WALTS) model covering the greater Windsor area; and (3) the Ontario Ministry of
Transportation (MTO) Truck model, which focused primarily on Ontario, but also covered North
America.

The Previous DRIC study model was updated from the P/N&F model by moving from a 2000 to
2004 base year to capture the major events that occurred after 2000 (such as 9/11, SARS, and the
Iraq War). As part of the study the international crossing trip tables were updated based on the
observed trends between 2000 and 2004, and the model was expanded to include a crossing
choice Logit model (which actually consists of three models: Multinomial Logit, Nested Logit
and Mixed Logit) that assigned the international trips to the three crossings including the new
alternative (DRIC) and estimated the willingness to pay at each of the crossings.

The General Update Framework of the Model


The manner in which the various parts fit within the overall structure of the travel demand model
are captured in Figure 1. Before displaying the model, it is useful to identify the nature of the

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updates to the model and the new changes introduced to the relevant databases. These changes
and updates include:

• Updating the road network to incorporate the new highway improvements in the
Southeast Michigan Council of Government’s (SEMCOG’s) 2035 Regional
Transportation Plan (RTP) and in the Windsor Area Long Range Transportation Study
(WALTS) for the City of Windsor;

• Incorporating the selected preferred alternative of the proposed new Detroit River
International Crossing (DRIC) into the road network;

• Calibrating the domestic trip tables on both U.S. and Canada sides to reflect most current
traffic profile;
• Updating the base international trip tables with the new passenger car origin-destination
survey conducted in April 2008; and the base commercial vehicle trip tables with the
national roadside survey/commercial vehicle survey (NRS/CVS) efforts which included a
commercial vehicle origin-destination survey performed by MTO in 2006;

• Developing and integrating a new discrete choice model to represent the motorists’
decision-making behaviour based on a state-preference survey conducted in April 2008;

• Calibrating the international and local models to the 2008 levels using the traffic counts
collected on both the Canada and United States side of the existing crossing.

The travel demand model consists of a regional demand model and a cross-border traffic model
that is further divided into commercial vehicle and passenger car model. Building upon the
existing DRIC study model, the original base year (2004) for the regional model was updated to
a 2008 base year. The modified base year trip tables for the commercial vehicle and passenger
car markets were modified based on more recent Origin-Destination (O-D) survey data collected
within the corridor. The schematic presentation of the WSA model in Figure 1 highlights the
structure and flow of the system. This schematic structure is used to organize our evaluation of
the model and results.

The base year regional model was calibrated to 2008 traffic counts and travel time data collected
from other regional studies. The calibrated regional model was then used to validate the crossing
choice model, which was constructed from the stated preference survey data collected in 2008 as
part of this study.

The future year network was updated by incorporating the new highway improvement program
from the SEMCOG’s 2035 regional transportation plan and from the WALTS on the Canadian
side. The preferred alignment for DRIC alternative as directed by Transport Canada was coded
into the network and included the approaching roads on both sides of the crossing. However, the
domestic trip tables on the U.S. side were still based on tables in Windsor area that used the
DRIC study trip tables which were updated to account for the latest demographic growth trends.

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The critical component in driving the volumetric forecasts came from the independent corridor
growth analysis of the Centre for Spatial Economics.6 The future cross-border trip tables for both
commercial vehicles and passenger cars were created by applying growth indices developed in
the corridor growth analysis to the base year trip tables. In order to estimate the future traffic
demand on the new WGBC, traffic assignments were conducted with the updated networks and
future regional and cross-border trip tables. The regional traffic assignments were performed
using the user-equilibrium methodology, while the cross-border traffic was assigned using the
validated discrete choice model developed as part of this study.

Figure 1 - Windsor Gateway Bridge Crossing Study Modeling Process Flowchart

6
Quoting the WSA Report… “The results from the corridor growth analysis performed as part of this study were
used as the basis for the development of the overall growth of the frontier traffic demand.” (WAS 2009; 5-12).

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Source: Wilbur Smith Associates. January, 2009. Comprehensive Traffic and Toll Revenue Study: Windsor
Gateway Project. Pp 5-3.

The Baseline Context

In any projection or forecast, the past is typically considered as the best guide for the future.
Time series data are examined using regression analysis in order to identify and quantify the
systemic determinants of the dependent variables of interest during the period for which data
exists. The crucial dependent variables in this exercise are: The passenger traffic volumes and
the commercial vehicle volumes at the three existing crossings in the Windsor-Detroit-Sarnia
area, namely the Ambassador Bridge (AB), and Windsor-Detroit Tunnel (WDT), and the Blue
Water Bridge (BWB).

It is obvious that the development of a new crossing (DRIC) in the region will have to be
contingent on a forecast that shows that traffic volumes in the future are likely to be larger than
the existing traffic capacity. Equally important is that the new crossing will be based on a strong
stated preference for a crossing that directly links to the highway network on both sides of the
Detroit River and that it is cost effective (within the preferred trade-offs between cost and time).

The WSA team has developed its work with these objectives in mind. Unfortunately, the past did
not cooperate well with their plans. The recent developments in the region in the past decade
have been a tale of declining traffic, both for the passenger and commercial vehicle components.
These declines are not exclusively conjectural (cyclical); they may reflect some deep structural
developments and some unique changes that would not change course easily or quickly. These
structural and unique changes cannot be ignored; they have to be worked into the model and the
future projections must reflect them. Without taking these into consideration, the projections will
reflect optimistic wishes and unjustifiably disregard significant lessons that must be learnt.

The Difficult Decade

The total volume of Canada/US border crossing traffic peaked in 1999/2000 with over 52.5
million vehicles (of which 8.5 million were commercial vehicles). Between 2000 and 2008, this
volume declined to less than 37.6 million vehicles (of which 7.3 million were commercial
vehicles), showing a 28.5% total decline. The passenger car crossing declines (31%) were
notably larger and faster than commercial vehicle crossings (14%), and this is despite the
continuous growth in trade between the two countries.

The automobile frontier border crossing traffic also peaked in 1999 and has ever since been
continuously decreasing with an almost 40% reduction in the Detroit and St. Clair River frontier
traffic in 2007 compared to the peak volumes in 1999. The commercial vehicle traffic has also
reflected the downturn in the auto industry which has greatly affected the volumes of border
crossing traffic. The details of the trends in frontier volumes of traffic are presented in Figure 2.

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The implicit rates of growth and decline over the period of 1972 to 2008 are displayed in Table
1. Same-day Passenger vehicles which grew at the annual compound rate of 2.48% between
1972 and 2000, and declined at the rate of 6.01% between 2002 and 2008. On the other hand,
commercial vehicles’ frontier crossings that grew at the rate of 5.51% between 1972 and 2000,
declined at the rate of 2.07% between 2002 and 2008.

Figure 2 – Frontier Volume of Crossing Traffic by Type

Source: Statistics Canada

Table 1 – Implicit Rates of Growth of Frontier Volume of Crossing Traffic

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-8.

A number of factors have contributed to the reversal of past growth performance between 2000
and 2008. While some of these factors may be dismissed as transitory and cyclical in nature, a
few others are more likely to reflect structural factors and may well become ingrained into the
normal processes of the system.

Several socio-economic significant events have occurred since 2000 that have greatly affected
the volumes of car and commercial traffic observed on the crossings. Some of these were

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recognized by the WSA team, but many were not considered and in all there is the presumption
that their negative influences and impacts may not last7. Below is a short list of those events that
we consider as likely to have long-lasting effects on traffic volumes, some of which were ignored
by the WSA team:

ƒ Opening of Detroit Casinos – The opening of the MGM Grand Detroit Casino in July of
1999 effectively ended the need for Detroit and other US residents to cross the border to
gamble at Casino Windsor. In addition, two new casinos have opened recently in Detroit.
Canadian casinos have a few advantages over their US counterparts that include the fact
that gaming wins in Canada are tax-free, Windsor is perceived to be a safer environment
than Detroit and until recently a cheap Canadian dollar. But Canadian casinos also have a
few disadvantages: the no smoking environment, no complimentary liquor, and the tolls
on crossings, longer driving time and now the passport requirement. It is not surprising
that the opening of the new Detroit casinos has had a noticeable, if not permanent impact
on discretionary traffic volumes;

ƒ The Stubborn Recession – The economy took a significant downturn in 2000 after very
strong growth in the 1990s, from the “dot-com” bust, then the Enron collapse on
December 2, 2002 and then the sub-prime debacle. What started as a real estate collapse
with housing prices falling over 30% in less than a year in 2008 (the early estimates put
the losses so far at over $2 trillion in the US alone), the sub-prime lending debacle led to
widespread business foreclosures and personal bankruptcies as high risk lending to
groups without sufficient resources to support their mortgage payments dragged several
banks and individuals into insolvency (120 US banks so far and the tally keeps growing).
It sank giant mortgage guarantors such as Freddie Mac and Fannie May when mortgagees
abandoned their homes, as their values fell below the mortgaged value. This real estate
crisis could have been restricted to the balance sheets of mortgage lenders and guarantors
but banks and investment banks bundled their risky (toxic) mortgages with other good
assets trying to hide the true risk content of these mortgages. They also believed that by
pooling the sub-prime mortgages together, they would be insulated against the risk that a
small minority of mortgages might go sour - or if some went sour, the returns of the
remaining mortgages would more than compensate for these losses. By all accounts,
however, they essentially discounted to zero the probability of a housing crash, which of
course led to entire pools of mortgages becoming essentially worthless.8 Ripples and
hiccups in the financial sector turned into tidal waves prompting Alan Greenspan to call it
a Credit Tsunami. Unemployment rates in the US which were at record low levels of 3-
4%, climbed up quickly exceeding 10% and staying stubbornly at or near this high level
dipping slightly as discouraged workers left the labour market.9 Detroit and Windsor

7
Source: IBI Group. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update Appendices. May 2010.
Pp41.
8
For a discussion of the dangers of assuming that a highly unlikely event is in fact an impossible event, see Nassim
Nicholas Taleb, 2007. “The Black Swan: The Impact of the Highly Improbable.” Taleb has also stated: Anyone
who knows anything about the history of banking (or remembers the 1982 Latin American debt crisis or the 1990s
savings and loan collapse) will tell you that the sub-prime crisis was so bound to happen.”
http://money.cnn.com/2008/03/31/news/economy/gelman_taleb.fortune/index.htm
9
See International Labor Organization, January 28, 2009. “Global Employment Trends” Available at:
http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_101461.pdf

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recorded historically high levels of unemployment over the prevailing national averages.
While the attraction of Detroit as an employment center for Windsor residents had
remained stable until 2006, it quickly contracted and many Canadians and local residents
lost their jobs. The recovery is still slow and particularly in the job market. The prospects
of a job creating recovery has now been pushed further into the future and there are
serious doubts that the region will ever recover fully;

ƒ 9/11, the Iraq War and the Afghanistan War – The aftermath of September 11, 2001,
and two related wars, has impacted the ease with which travelers can cross the border and
has also depressed the propensity for international discretionary travel;

ƒ SARS and Swine Flu epidemics in Toronto – In 2003, the City, a popular tourist
destination for Americans, was one of several global locations of the highly-publicized
epidemics. Impacts on tourism and vacation trips across the border were immediate and
seem to have some long lasting impacts;

ƒ Appreciation of the Canadian dollar – In 2007, the value of the Canadian dollar hit
parity with the US dollar for the first time since the mid 1970s and for a short while it
even exceeded parity reaching $1.10 US per one Canadian dollar. While the rise in the
value of the Canadian dollar vis-à-vis the US dollar makes travel to the US more
attractive for Canadians, it has the opposite effect for travel to Canada for Americans.
From a work commuting perspective, the incentive for Canadians to work in the US will
decrease and Canadian exports to the US will rise in price and become less attractive. On
the other hand, Canadians will be induced to increase their cross border shopping and
importing US goods. The real issue here is about the future value of the Canadian dollar
in terms of US dollars. It is difficult to predict with any certainty this value, but the
consensus forecast puts this value at $1.07 Canadian dollars per $1 US dollar. This is still
a high value than the historical average or median over 50 years. If this appreciated value
were to continue, lower traffic volumes could be expected;

ƒ Passport requirement – The introduction of a passport requirement in mid 2010 on


cross border traffic is turning out to be a major barrier to travel between the two countries
given the low propensity of US residents to acquire this document. It is believed that
upward of 50% of US citizens do not have a passport and are not likely to acquire one
soon;10

ƒ Increase in gasoline prices – While gasoline prices have fluctuated widely, there is a
general escalating trend. This is all the more likely with the increased realization that we
are not adding to proven reserves what we are depleting and then there are the looming
emission charges and carbon taxes. Transportation volumes are quite sensitive to gas
prices and the expected rise in these prices, as world wide scarcity rises, suggest that

10
“most Americans do not have a passport. The number of Americans who have a passport, according to the State
Department, is 68 million, or around 22% of the population. That means roughly only 1 out of 4.5 Americans can
even visit Canada, let alone travel to anywhere else in the world”. http://www.theexpeditioner.com/2010/02/17/how-
many-americans-have-a-passport-2/#idc-container

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crossing volumes may decline in tandem with these expected increases in gas prices
(depending of course on the elasticity of demand for travel with respect to gas prices);11

ƒ Technological Change – The Internet has reduced measurably the cost of


communication so much so that it is now the dominant means of human interaction. The
increased use of the Internet and the continuous decline in its cost has and will continue
to boost its competitive attractiveness over traditional transportation modes of interaction.
The increased share of services in GDP is another factor that would continue to decrease
the intensity of transportation. Today the US economy produces at least 10 times more
income than in 1900 but weighs almost the same. This gave rise to the emergence of what
is referred to generally as the “weightless economy”;

ƒ The Disappearing Middle Class – Income and wealth in both Canada and the United
States have increasingly gravitated into the hands of the few rich. The poor have become
poorer and the rich richer. The middle class suffered major losses in real income whereas
the top 20th percentile on the income distribution scale has expanded its income and
wealth shares. The rich typically fly and the poor rarely drive.12 Passenger cars are
generally owned and driven by the middle class. As globalization has been associated
with income and wealth polarization, the middle class has shrunk. This is seen as
responsible for reducing the ranks of this class and the aftermath of the contracting
numbers of this class is expected to reduce driving in general and border crossings in
particular;13

ƒ Environmental Issues - Increased awareness of the impact of transportation on the


environment is likely to convince people to travel less and to use other less intrusive
modes of transportation (e.g., trains). The implications of environmental awareness
bolstered by emission taxes, carbon charges, etc. must be factored into any forecast of
future traffic volumes in any jurisdiction.

The impacts of these events on annual crossing volumes have already become noticeable as is
clearly shown in Figure 2. Since 2000, passenger car traffic volumes have decreased by 35% at
the Ambassador Bridge, 48% Detroit-Windsor tunnel, and 22%, at the Blue Water Bridge. The
continuation of these negative impacts on future volumes is quite likely as many of these
structural factors continue to exert their influence. It only makes sense to treat these factors and
their influences as hypotheses to be tested and their implications to be explored. Unfortunately
the WSA report has either not done so or it did not do that properly.

11
See Gene Coperman in http://www.ccs.neu.edu/home/gene/peakoil/
12
See the information and graph in
http://www.payscale.com/research/CA/Country=Canada/Salary/by_Method_of_Travel
13
The US Census Bureau’s measurement of the Gini coefficient, a widely-used indicator of income inequality rose
steadily from a level of 0.388 in 1968 to 0.466 in 2001. See
http://www.census.gov/hhes/www/income/histinc/ie1.html

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Same Day Passenger Crossings

Three separate types of traffic volumes were identified and their growth rates were estimated.
The three types include:

• Passenger vehicle crossings occurring within the same day


• Passenger vehicle crossings with a trip duration exceeding the same day (overnight trips)
• Commercial truck crossings

Growth rates of each separate crossing volume is analyzed following the sequence that the
Centre for Spatial Economics has presented its methodology, assumptions and results in their
Report to WSA.

People travel short or long distances for a variety of reasons whether for commuting to work,
recreation, or other reasons. Many socioeconomic determinants can be postulated to influence
this travel. Typically same day travel is dominated by work consideration and this is a function
of such variables as income, exchange rates, cost of fuel, employment prospects, and many other
quantifiable or non-quantifiable factors.

The Centre for Spatial Economics used multivariate regression analysis to quantify these
determinants and projected the independent factors into the future in order to forecast the future
volumes of cross border traffic in the Detroit Windsor region.

The specification of the regression equations is critical and we will focus on their structure,
estimation, precision and results. These regression equations require data and that is where we
will begin our review and evaluation.

Same Day Passenger Car Crossings: Data Availability and Quality

Time series data are required for both the regression estimation and for forecasting. The
identification and quantification of the influence of the independent socioeconomic (exogenous
variables) on the dependent variable (endogenous) which is here the volume of passenger car
crossings on the three Detroit River outlets is done through regression equations.

Annual historical time series crossing traffic data for the three Detroit River crossings by type of
vehicle (cars, trucks and buses) and by market segment (commuting, recreation, etc.) for 1972 to
2008 are not available from one source or in the manner needed for the estimation. This required
a number of assumptions to prepare this data for the regression exercise. Some of these
assumptions are critical and can easily compromise the accuracy and reliability of the results.

The Annual automobile traffic volumes are available from the Public Border Operator’s
Association (PBOA). This data is heavily used and has a general reputation of being accurate and
reliable. It does not, however, provide the purpose of the trip. This has to be drawn from other
sources. A good source is Statistics Canada International Travel Survey that is conducted
annually relating to the travel characteristics of US residents entering Canada and Canadian

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residents returning from overseas and the US. Information on same day and overnight visits by
port (Windsor, Sarnia, etc) by mode of travel (cars, buses, etc.) and other relevant characteristics
are available from this Survey. Unfortunately, this separation between same day and overnight
trips is only available until 1997. After 1997 both types of trips are lumped together for the
Detroit/Sarnia crossings.

The Center for Spatial Analysis uses the proportions of overnight to same day crossings for the
Ambassador Bridge and Windsor-Detroit Tunnel in 1997 to separate same day crossings from
overnight crossings for subsequent years. Given that a great deal has changed since 1997,
particularly factors that would influence overnight crossings and same day crossings differently,
real questions can be raised about the permanency (constancy) of this share over time.

A number of additional assumptions were made to prepare the data required for the estimation
and projections. The most critical and questionable of these include:14

ƒ Same day and overnight passenger car travelers’ characteristics of those entering the US
from Canada are the same as for travelers entering into Canada from the US.

ƒ Automobile occupancy rates for both US and Canadian travelers are identical. This is
perhaps not a critical assumption but it can still bias the results given the escalation in the
cost of fuel, the rise in the cost effectiveness of travel of smaller parties and the different
purposes motivating the parties to travel.

ƒ Non-Canadian/US residents traveling into Canada have the same travel characteristics as
those surveyed. This is untrue. Though the proportions of these to the total are small and
so may not make a major difference in the results, it is not correct or reasonable to expect
non Canadian and US travelers to exhibit the same characteristics as those surveyed.
They generally travel for different reasons and purposes than others who were surveyed.

The Michigan Ontario Border Crossing Survey results of 2000 were used to generate volume
flows and characteristics for later years. The most glaring inherent assumption was that
pertaining to the proportion of commute/work trips in the survey as being representative of that
proportion for the entire year and beyond.

The Origin-Destination survey trip purpose data was also used to split the passenger car traffic
for 2008 with an adjustment to account for weekends. The interim years between 2000 and 2008
were interpolated based on the data in 2000.

These assumptions may have been necessary to generate time series data for estimation purposes.
Nonetheless these assumptions introduce an element of inaccuracy that certainly both colours
and compromises the reliability and usefulness of the exercise.

Other data sources used present different challenges and problems. Census data from Statistics
Canada was used to estimate the number of Canadians living in the Windsor Census
Metropolitan Area (CMA) that were employed outside Canada. This information was assumed
14
These assumptions are listed in (WSA 2010; CG-6).

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to be representative of the number of commute/work trips at Windsor’s crossings. Furthermore,
this information is only available on a five year basis. The last Census was in 2006. Using 2001
as a base year and the estimate of commute/work trips of each census year up to 2001 base year
was applied to estimate future years’ commute/work crossings at the two Windsor crossings.
Assuming that the same proportion in 2001 would apply for all subsequent years is a significant
assumption which is not very reliable.

Same Day Passenger Car Crossings: The Regression Equations and Results

The distinction between same day commuting and overnight traffic was motivated by the fact
that different determinants explain these two separate trips. Several “a priori assumptions” were
made and tested by the Center. The same day work related crossings were assumed to depend
exclusively on employment and population. The presumption here is that other factors such as
exchange rate fluctuations, security concerns, and the price of gas are not important
considerations for this segment of traffic.

The Centre claims that multiple possible socioeconomic variables were tested (200 multivariate
equations were modeled with permutations of the independent socioeconomic variables for each
same day passenger vehicle crossing purpose)15 to determine a statistically significant historical
correlation with the border crossing volumes. However, this is only a claim. The Report and
Appendix C do not report on any of these estimated equations.

The Centre has chosen to report on only one equation for the frontier and for each traffic volume
type based on the socioeconomic variables that exhibited the best explanatory power based on
what it claims to be the outcome of its “qualitative and quantitative assessments of the regression
results.”

The regression results displayed in Table 2 show that 91% of the variations in the first equation
are explained by Michigan and Ontario employment alone (Adjusted R2). The t-statistic is high,
but this is misleading because of the possibility of misspecification of the estimated equation. (t-
statistics are a measure of robustness and significance of the explanatory variable as it represents
the number of times the estimated coefficient of the independent variable exceeds its standard
error. If the estimated coefficient is only equal to two times its standard error or less it is
considered to be imprecise.)

It is reasonable to question a specification that shows one variable explaining this much of the
variation of same day traffic (commute/work related) on its own. It is typically the case that in a
regression equation with missing variables the one single explanatory variable picks up the
implicit influences of the variations in these missing variables. We are emboldened to claim this
given that the second equation of other same day traffic is sensitive to employment in the local
zone (while the commute/work equation is not) and to the events in September 11, 2001.

Interestingly the second equation is negatively related to local employment. The story advanced
by the Center perhaps applies more to the first category rather than to the second. What is
15
Footnote 5 to the WSA 2010; CG-13).

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worrisome is that the single determinant in the first equation is a variable that typically displays a
positive trend which would, as we shall see later, bias the projections of this traffic volume
upward without a single negative influence of the type experienced and reflected in the volumes
of crossings after 1999.

It would have been possible to settle this argument if other typical regression statistics were
provided such as the Durbin Watson (DW) coefficient or any other similar coefficient of any
autocorrelation in the error terms. To properly evaluate this would require a picture of the errors
pattern. Any systematic display in these errors would have pointed out immediately if there were
systematic errors indicative of autocorrelation in the errors because of the influence of missing
variables.

Table 2 – Regression Estimates for Same Day Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-14.

The predicted and actual volumes are displayed in Figure 3 and show that the estimated equation
fits well the actual data. What is relevant here is that fitted equation fits both the upward trends
before 2000 and the declining trends after 2000.

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Figure 3 – Actual and Regression Estimates of Same Day Crossings (1987=100)

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-15.

Historically, both the population of Ontario and that of SEMCOG show positive trends, though
more in the case of Ontario than for SEMCOG. However, when the two populations are
combined, the Ontario population growth (driven by immigration) dominates (Figure 4) and the
resultant population exhibits a positive and upward trend.

We question whether this addition is a coincidental construction. If one wants to forecast large
future volumes of traffic it certainly helps to have the independent variable show an upward
positive trend (slope). The employment trends show an upward trend until 2006. Following that
there is a visible decline. If data were extended to 2010 this decline would be more pronounced
(Figure 5). Surprisingly none of these negative observations after 2006 are reflected in forecasts
(projections) of the employment trends. The projected values of this employment variable simply
show rising trends as if the structural events in the last decade were simply short-term
aberrations that are not likely to endure even in the early period of the forecast.

The impact of 9/11 is singled out as a determinant of the non-work related same day crossings. It
influences this volume in a negative way. The Center claims that the influence of this event will
be visible for a while but it will transpire throughout a generation span assumed to
“progressively decline until becoming non-influential by 2034”, i.e., the dummy variable
progressively declines to the value of zero then. It is not clear how this decline is determined. It

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is not a geometrical decline, nor is it an arithmetic decline; it would have helped to see an exact
specification of how this influence dissipates over time.

Figure 4 – Historical Indexed Population Trends

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast
Refresh and Update Appendices. May 2010. Pp CG-10.

Both figures 5 and 6 present the historical indexed employment trends in the Provincial economy
of Ontario, State economy of Michigan and other local economies in Windsor and Sarnia.
Nothing is presented about the employment trends in the Detroit area alone. This selective choice
of independent variables and trends does not instill confidence in the analysis and raises
questions about whether the objectives of the study may have trumped the scientific basis of the
exercise.

In Figure 6, SEMCOG population is presented but not employment. To what extent the negative
trends in the employment variable has played a role in dismissing or excluding it from the
analysis of trends, projections and of course from being selected as a determining factor is not
explained in the report. .

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Figure 5 – Historical Indexed Employment Trends

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project
Forecast Refresh and Update Appendices. May 2010. Pp CG-11.

It is small wonder then that the baseline forecasts in Figure 7 show an upward future trend of the
volume of traffic in the frontier area of passenger cars same day traffic despite the fact that in the
earlier period preceding the forecast there was a major trough in these volumes. It is here that the
projections become questionable. It is simply unacceptable to dismiss the earlier decade as
irrelevant and equally unacceptable to premise the projections on only those indexed values that
are positive. If the past is any indicator of the future, a similar pattern would prevail and the
picture that emerges would show a different profile than the one the Center wants us to accept.

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Figure 6 – Forecast of Population and Employment Trends

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project
Forecast Refresh and Update Appendices. May 2010. Pp CG-17.

Figure 7 – Baseline Forecast of Frontier Same Day Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh
and Update Appendices. May 2010. Pp CG-18.

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The Center claims that other explanatory variables were tested such as other population and
employment socioeconomic variables pertaining to Michigan and/or Ontario, dummy variables
(including the Detroit Casinos, the Windsor Casino, the 9/11 impact, the impact of the Free
Trade Agreement, the foreign exchange rate, the State and Provincial GDPs). However, these
claims were not demonstrated. Instead it was asserted that the regression results indicated that
“..all but the previously mentioned [combined employment in Michigan and Ontario for the first
equation] and [the local employment and 9/11 in the second equation] socioeconomic variables
were the best suited variables for explaining the levels of total same-day traffic volumes.”16

This study sought to investigate whether a multi-billion dollar investment that the tax-payers of
Canada, particularly Ontario, and private domestic businesses would pay for, is justified by
expected increases in traffic volumes over existing capacity. It is not acceptable to make claims
about results that are not displayed and made in a transparent way for others to evaluate and/or
replicate.

Overnight Passenger Car Crossings: The Regression Equations and Results

These crossings represent a modest share of total passenger car crossings. The average share
between 1972 and 2008 was 19% and has since risen to 22% in recent yeas as work related same
day passenger cars crossings declined.

The overall trend of these crossings was positive for most of the period 1972-2008. In 2007 and
2008 the volume of passenger car crossings declined.

A number of key variables are assumed to be potential explanatory and predictive variables.
These include the populations of Michigan and Ontario, the employment levels in both of these
areas, their real GDP, the exchange rate and a dummy variable for 9/11. The Center has claimed
that different pairings of these variables were tested.

Given the number of observations, it is not clear why pairings of two and not more than two
explanatory variables were used in the regression equations. Again it is claimed that in the end
the greatest explanatory power of historical overnight passenger car crossings came from the
combined populations of Ontario and Michigan. This variable explained only 68% of the total
variation in the dependent variable. This is not a whole lot in time series regressions. It is also
claimed that none of the other variables explained the brief rise above and the fall below the long
term trend. Indeed it would have been helpful to see this claim demonstrated.

It is interesting to note that the exchange rate was capable of explaining 92% of the variation in
the share of overnight crossings, but failed to explain the dip in the share that occurred in the
latter half of the 1990s. It is curious that the combined population and the exchange rate that
could have dealt with this problem were not tried and presented. Unfortunately this selective
presentation of the results is not very helpful. It is also small wonder that the regression equation
with only the combined populations (with an upward trend) has over-estimated the volume in
2009 by a large margin (the predicted volume using the regression equation is 3.47 million while

16
See (WSA 2010; CG-16).

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the actual number was 2.48 million). It is easy to wonder whether another variable such as the
appreciating Canadian dollar could have captured this decline.

The regression results in Table 3 show that the adjusted R2 is not impressive (about 68%). The t-
score is high and statistically significant (8.74), but it is not clear that this is the outcome of its
independent explanatory power or the outcome of other missing variables.

Table 3 – Regression Results for Overnight Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-20.

It is here that one could also wonder why other functional forms were not specified and
estimated. The linear structure is simply inappropriate as is clear in Figure 8. If the real issue is
forecasting accuracy, then other statistical specifications such as Vector Auto Regression (VAR),
Box-Jenkins, ARIMA, etc should have been used. Earlier studies did that with some success and
good outcomes, but for some unexplained reason, it has not been completed with this most recent
report.

There is nothing surprising about the lack of concordance between the actual and predicted
values in Figure 8. The actual values show significant fluctuations, the predicted values based on
a smoothly rising population shows a smooth positive trend in overnight passenger car crossings.
This is precisely why it is inadmissible to use this equation in predicting this variable. Other
specifications would be better predictors, particularly any with an independent variable
exhibiting some fluctuations in its values that mirror the ones displayed by the dependent
variable.

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Figure 8 – Actual and Estimated Historical Indexed Overnight Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-20.

Figure 9 – Baseline Forecast of Michigan and Ontario Population

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-21.

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Nothing but a positive and continuous trend in the volume of overnight passenger car crossings
can come from the baseline forecasts using the projections in Figure 9. Despite the evident
fluctuations and the dip in the volumes of crossings in overnight passenger vehicles, the forecast
is a continuously rising volume of these crossings as is clear in Figure 10 below. It is true that
the slope of the rise is limited but there are serious doubts as to the validity of using a
continuously rising explanatory variable to predict when the past is essentially a truly camel
humped distribution. While some adjustments were made to the levels forecasted for 2009 and
2010, these were insufficient and ad hoc.

Figure 10 – Baseline Forecast of Overnight Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and
Update Appendices. May 2010. Pp CG-22.

Commercial Vehicle Crossings: The Regression Equations and Results

Commercial vehicles accounted for over 27% of the total vehicle crossings along the frontier in
2007 and 2008. The importance of this market segment has grown over the entire period of
1972-2008. The share of this market segment increased from about 11% in early 1970s to the

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present 27%. The most significant growth occurred in the 1990s following the Free Trade
Agreement (FTA) and NAFTA.

The commercial vehicle crossings along the frontier are primarily of the long haul category with
a small share representing local to local trips. It is also true that a good share of the commercial
vehicle trips are related to the motor vehicles and parts trade across the frontier. About a third of
all commercial vehicle crossings were related to this trade given that Ontario and Michigan were
major producers of motor vehicles and parts. Michigan still represents about 22.1% of all US
motor vehicles and parts while Ontario continues to represent 66.6% of all Canadian production.

The recent recession decimated the auto sector. Employment, production and sales fell by over
30%. As well, Michigan and Ontario are losing market share in this sector suggesting that in the
absence of other substitutes, the trade volumes between the US and Canada can be expected to
decline. More noticeable and of significant implication for crossings of all types is the loss of
market share in this sector by both Windsor and Detroit. Even if this sector were to recover, it is
by no means certain that Detroit and Windsor would reclaim their past shares in this sector.

The rate of increase in the trade volumes between the two countries has been steep and
magnitudes increased in multiples of past values. Recently, the recession has cut deep into these
trends as is depicted in Figure 11. The real question is how long the current recession will last
and to what extent does the recent appreciation in the Canadian dollar cut into these volumes.

Figure 11 – Historical Indexed Trade Trends

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast
Refresh and Update Appendices. May 2010. Pp CG-12.

The trade structure between Ontario and Michigan and between Canada and the US is changing
too. Other products are gaining importance (Machinery and forestry products) and replacing the
auto sector as the dominant tradable commodities. But whatever the structure or volume of trade

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is, it is this key, and unknowable, variable that is likely to continue to explain the volume of
commercial vehicle crossings along the frontiers.

The explanatory variables of the volume of commercial vehicle crossings along the frontier are
the turnover of Ontario’s foreign trade and the exchange rate. Both of these variables are highly
significant. The Ontario foreign trade turnover has a t-statistic of over 29.4 and that of the
exchange rate of about 6. We are not sure about the sign of this coefficient as we are not clear
about the definition of the exchange rate used. If it is defined as the price of one US dollar in
Canadian dollars, it should be negative. But combining exports and imports adds another
complication.

Table 4 – Regression Results for Commercial Vehicles Frontier Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-24.

The adjusted R2 is quite high and without doubt this is the best regression fit of all the three
traffic components. It is not surprising therefore to see that the actual and estimated curves are
quite close and the predicted volumes tracks well and fully the actual data in Figure 12.

Figure 12 – Actual and Estimated Commercial Vehicle Frontier Crossings

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC


Project Forecast Refresh and Update Appendices. May 2010. Pp CG-25.

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The same problems alluded to in earlier sections afflict the projections of the independent
(exogenous) variables driving the forecast in the case of commercial vehicle crossings’ forecasts.
Again the predicted turnover of trade is an upward and smooth trend and it alone is carrying the
brunt of the forecasts of the commercial vehicle crossings (Figure 12). We are not sure what
happened to the exchange rate variable. It may have been dropped as in other forecasts on
account of the incorrect assumption that the impact of its fluctuations are presumed to be of a
short term nature - but are they?

Figure 12 – Forecast of Ontario Foreign Merchandise Trade

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-27.

Predicting the future turnover of Ontario’s foreign trade is not a simple task. The US real GDP is
assumed correctly to be one of the major determinants but so are the exchange rate and a dummy
for 9/11. But a real issue remains, what forecast to use of the US real GDP?

Given the close relationship between trade turnover and commercial vehicle crossings and the
common patterns they share as displayed in Figure 13, correctly predicting the turnover of
foreign trade may provide a solid anchor for predicting commercial vehicle crossings.

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Transport Canada provided the Center with long term projections for the US which they acquired
from the Conference Board of Canada, Infometrica and Global Insight. The Center was not
happy with those projections and preferred to use its own, given the greater consistency their
projections have with the US Congressional Budget Office (CBO).

Typical CBO projections are for 10 years and the Congressional Budget Office has projected the
potential annual growth rate of real GDP to fall from 4% in the early 2000s to 2.4% in 2018. But
back in 2000, the CBO prepared a 75 year projection to assess long term budgetary implications
of Social Security and Medicaid. The projections portray a declining path of growth rates till
2020 and further declines to 2050 at a rate of growth of less than 1% per year until 2075. These
low growth rates are the result of an anticipated decline in the working age population (20 to 64
years) and a concurrent decline of productivity growth to less than 1% per year (Figure 14). The
different projections of US and Canadian real GDP by different consulting firms were contrasted
with the Center’s and this comparison is displayed in Figure 15.

Figure 13 – Historical Trends in Indexed Commercial Vehicle Crossings


and Ontario Trade

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-29.

Surely the Center’s projections are lower and more consistent with the CBO’s. This has
implications on Ontario’s trade and therefore on overnight commercial vehicle crossings along
the frontier.

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Figure 14 – Historical and Projected Potential Real GDP Growth in the United States
and Canada, Annual Percent Data from 1950 to 2050

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project
Forecast Refresh and Update Appendices. May 2010. Pp CG-35.

Figure 15 - A Comparison of Projected Real GDP Growth in the United States,


Annual Percent Change from 2005 to 2051

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project
Forecast Refresh and Update Appendices. May 2010. Pp CG-36.

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The line of influence captured by the regression equation in Table 4 suggests that GDP growth
influences trade and the latter influences commercial vehicle crossings. It is obvious that declines
in US real GDP growth rates are bound to reduce the growth of Ontario exports to the US and in
turn limit the growth of overnight commercial vehicle crossings.

The trajectory path of the forecasted values in Figure 16 does not reflect these lines of influence.
To the contrary, the projected rates of growth of commercial vehicles follow a steep upward
rising trend. Again the influence of the exchange rate and other relevant variables with
statistically significant t-scores has disappeared unjustifiably from the forecasting equation. The
volume of commercial vehicle crossings doubles in 20 years and continues to grow linearly up
until 2064 where it reaches 3.5 times the baseline volume in contrast to the historical record and
the projected trends in the explanatory variable.

Figure 16 – Commercial Vehicle Frontier Crossings Forecast

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-30.

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Alternative Forecasts and Risk Analysis

The future is uncertain and the projected values are subject to errors. Some are embodied in the
estimated coefficients (with standard errors) and others are about the trends in the exogenous
(independent) variables.

The Center has chosen to use an outmoded and now generally unaccepted way to deal with the
future and risks. Using arbitrary pessimistic and optimistic variations does not help much. Were
the investment values at stake in the order of magnitude of a few million dollars, the use of
sophisticated risk analysis may not be warranted. The expected new investment in the new
bridge is likely over $5 billion in total, and probably more. Forecasting errors are quite costly
and simple forecasts can not and should not underpin massive investments of the kind and value
expected to be made in the new crossing.

We are of the opinion that a full and thorough risk assessment procedure is necessary and
warranted. The current alternative forecasts are not consistent with the current standard risk
analysis procedures. The latter calls for using the standard errors in the regression equations and
different probability distributions assigned to the exogenous variables. A standard tool is @RISK
which is now widely used and is the standard tool in this area.

The procedures used by the Center to bracket its projections are presented below in a number of
figures. Both the optimistic and pessimistic forecasts are outlined in Figure 17 through Figure 20.
With the exception of the low scenario for overnight passenger vehicles crossings of the frontier,
where the end of the period forecast of the volume of crossings is lower than the one in 2008, all
other forecasts show that even the low scenarios project higher future volumes of crossings.

A minimum regret strategy is one that is typically conceived to protect the investors under a
worst case scenario and it generally postulates the largest risk exposure. The scenarios are not
constructed to deal with these downside risks or with the probability of their occurrence. The
absence of this probabilistic framework undermines the usefulness and credibility of the existing
scenarios.

The “what if” and sensitivity analyses in Chapter 7 are not sufficient to deal with the risks
embedded in this massive project and the type of forecasts and analyses undertaken. There is no
way that sensitivity analysis, however useful it may be, can substitute for the proper risk analysis
that we are arguing for.

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Figure 17 - Index of Real GDP in the United States (1981=100) for the
Baseline, High and Low Projection Alternatives

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-41.

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Figure 18 – Same Day Passenger Vehicle Crossings Forecast – Alternative Scenarios

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-31.

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Figure 19 - Indexed Forecast Corridor Growth for the Alternative Scenarios:
Overnight Passenger Vehicle Crossings (1987=100), Selected Years

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-43.

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Figure 20 - Indexed Forecast Corridor Growth for the Alternative Scenarios:
Commercial Vehicle Crossings (1987=100), Selected Years

Source: Centre for Spatial Economics. Wilbur Smith Associates. DRIC Project Forecast Refresh and Update
Appendices. May 2010. Pp CG-44.

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The Stated Preference Model

The expected future volume of traffic on the new crossing (DRIC) draws on the Centre’s
forecasts and the Stated Preference Model developed and implemented by Resource Systems
Group Inc. (RSG). The results of the stated preference model, the revealed preference survey and
the Origin-Destination surveys are used to allocate traffic over the four crossings. The
“willingness-to-pay” estimates are also used to gauge the sensitivity of the traffic volumes and
revenues to different toll rates. Unfortunately the tools are not sufficiently or appropriately
developed to allow this usage.

This section provides comments on a series of discrete choice analysis models that were
estimated with stated preferences data collected for the purpose of evaluating the sensitivity of
travelers crossing both the Detroit River and the St. Clair River to tolls and time. The stated
preferences survey through which data were collected used an orthogonal experimental design,
implying that the independent variables used in the estimated discrete choice models were
uncorrelated. It is not clear to us at this stage how survey participants were randomly selected for
inclusion in the sample. Like any other econometric modeling activity, a random sample is
necessary, if one is to avoid bias in the parameter estimates.

It is important to note that discrete choice models estimated with stated preferences data, as
opposed to revealed preferences, are not suitable for projections or for calculating market shares
among alternatives. If stated preferences data is used, then the alternative specific constants of
the estimated models require adjustment with appropriately collected revealed preferences data.
It is not clear to us that this adjustment was made or if it was made, what the adjustments were.
There is a discussion of an adjustment using traffic count, but it is still unclear how the constants
were adjusted to allow their use as market shares.

While discrete choice models estimated with stated preferences data cannot be used in a
predictive way, they are good in explaining the behavior of individuals and allow for the
estimation of the willingness-to-pay for certain characteristics of the alternatives under
examination.

In the stated preferences data collection, participants in the survey were asked to review a table
of alternatives along with their characteristics and choose one of the alternatives. For each
individual participant this experiment is repeated usually eight times (too many will cause
fatigue, too few will yield fewer observations, so eight times is a widely accepted number in the
field).

In each repetition the characteristics of the alternatives are varied randomly within specified
percentage limits. The table of alternatives and the limits of variation for the values of the
characteristics were determined at the experimental design stage of the survey and we judge
them as appropriate. However, it is a standard critique of stated preferences samples that they
introduce adverse selection bias and that the eight alternatives presented to the same person
infest the sample with bias and lack of independence.

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In the particular case of this study, the alternatives are: New Bridge (Windsor-Detroit),
Ambassador Bridge (Windsor-Detroit), Detroit-Windsor Tunnel, and Blue Water Bridge (Port
Huron-Sarnia). The main characteristics of the alternatives are the time required to cross and the
toll charged. The limits within which these characteristics are varied to provide choice are also
included. It is worth pointing out that since one of the alternatives (New Bridge) is not available
at the time of the study, the choice of stated, as opposed to revealed, preferences analysis was
appropriate.

Data were collected from 848 private automobile respondents for a total of 6,784 (8*848)
observations. Data were collected also from 293 commercial vehicle drivers (2,344 observations)
and 122 commercial vehicle fleet dispatchers or managers (976 observations). Models were
estimated for all three types of respondents.

The sample size for all three groups is considered adequate, although a bias may be present in the
data because of the way the data were collected. Choosing only computer literate persons, and by
inviting a few members of some conveniently responsive list serves could have reduced the
randomness and independence of the responses.

Apart from the alternative specific constants, all models presented used two independent
variables: the travel time, or time to cross to the other side, and toll cost. Although the RSG
Report mentions on top of page 78 that several other variables were tested, none of those
specifications are presented. In particular, trip characteristics and socioeconomic and
demographic characteristics of the individuals in the case of the private automobile models
should have been used. The view of someone who lives far from the area and very infrequently
uses one of those crossings would be very different from that of someone who lives in the area.
Also, valuation of time and toll cost are different for different socio-economic classes. Unless
such variables had no impact on the presented coefficients, then the exclusion of such variables
from the models risks rendering them as mis-specified.

The Report tried to deal with these issues through the trip distance segmentation models starting
on page 79. It appears, however, that separate models were run for short and long distance trips,
the results reported in tables 20 to 22 of the Report. What is confusing, however, is that one set
of independent variables and model diagnostics are reported. It may well be that categorical
variables of distance were used, as described in the bottom of page 79, and those variables were
interacted with the time and cost variables. This, however, is not clear in the Report which
approach was followed.

The nested logit structures tested in pages 81-85 were worthwhile and demonstrated the presence
of independence of irrelevant alternatives property among the alternatives. In particular, the
significance of the theta parameters demonstrated that the Ambassador Bridge and the New
Bridge will act as substitutes of one another. Also, worth while was the estimation of the mixed
logit model to demonstrate the effects of heterogeneity among travelers on the valuation of time.

In all of the models presented one of the major drawbacks has been the lack of model
diagnostics. Without exception, the initial and final value of the log-likelihood function is
presented for each estimated model. One can certainly calculate from these values the overall

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improvement in the model (ρ2). However, the most often used measure of goodness-of-fit for
such models is the improvement in the log-likelihood function after taking into account the
alternative specific constants. This would have helped us to know the improvement in the model
that was due to the independent variables, in this case the travel time and toll cost. Unfortunately
such a measure is not provided, neither is any measure of the significance of the overall model.

We have presented a number of caveats above that lead us to conclude that despite the competent
construction and implementation of the model there remain some serious concerns that need to
be addressed. The most serious of these caveats is the potential sampling bias because of the
way individuals were selected for inclusion in the sample and the lack of independent variables
in the models that would capture the characteristics of the trips undertaken and the individual
socio-economic characteristics. But the most worrisome concern is the use of the stated
preference model for prediction and allocation of market shares among the crossings instead of
revealed preference which in our opinion is not acceptable.

Summary and Conclusions

There are many more issues and concerns on a Chapter by Chapter basis. We have refrained
from going into this much detail preferring instead to highlight the most salient issues.

It is our considered judgment that the WSA Study Team has attempted to rationalize an over $5
billion dollar investment in a new Detroit River crossing by ignoring the negative impacts of the
serious structural transformations that have occurred in the last decade and by selectively
anchoring the future projections on only those variables that display notable historical upward
trends.

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