A generalization of the multinomial logit (MNL) model is developed for cases in which discrete alternatives are ordered so as to induce stochastic correlation among alternatives in close proximity. The model belongs to the Generalized Extreme Value class introduced by McFadden, and is therefore consistent with random utility maximization. If the true model is nearly MNL, iterative estimation on an ordinary MNL computer package provides approximate parameter estimates and a test for the hypothesized failure of the MNL'S "independence from irrelevant alternatives" assumption. A straightforward extension can handle cases where observations have been selected on the basis of a truncated choice set. The model's properties are investigated through a numerical example, and through two empirical applications whose rather unsatisfactory results are very briefly described.

There has been disagreement in recent years' about the merits of empirical studies, pioneered by Ridker and Henning (R-H) in this Review,2 measuring the relationship between property values and air pollution within a metropolitan area. In these studies multiple regressions of property values on air pollution and other housing characteristics, and sometimes on income, are performed for crosssectional data within a metropolitan area. Unfortunately, the debate has centered on the prediction of changes in aggregate property values in response to changes in overall pollution levels. This has obscured the central issue, which is the measurement of the costs of pollution from the point of view of willingness-to-pay.3 Where the discussion has touched on this question, it has failed to recognize a straightforward argument by which the use of these empirical studies for cost-benefit analysis can be justified. Anderson and Crocker (A-C) and Polinsky and Shavell (P-S) both use the unrealistically strong assumption of identical tastes to argue that the regression can identify the parameters of a demand curve.4 Freeman (1971, p. 416) correctly points out that, in the real world, such a regression cannot isolate demand from supply elements; but he apparently does not realize how much information can be culled from the properties of the resulting equilibrium situation.5

The purpose of this paper is to demonstrate that the scheduling of activities by consumers can be explicitly modeled in theoretically satisfactory and empirically productive way. Even in the case of urban work trips, probably one of the most tightly constrained of everyday activities, schedule shifting is found to be of quantitative importance for the understanding of urban transportation systems. Considerable effort will be required to assess fully the implications of this type of behavior for such important areas of transportation analysis as demand studies, value-of-time measurement, policy simulation, and cost-benefit analysis. Meanwhile, it seems likely that this approach can be applied productively to other goods subject to peak demands.

In this paper, we investigate the complementary question of the optimal durability of highways. We find that in order to minimize discounted lifetime costs, typical urban interstate highways should be designed with thicker pavements lasting much longer between repavings. Furthermore, although existing roads have marginal pavement-wear costs that are quite high, optimal high-volume urban interstates would not. Thus the need for marginal-cost taxation, and the accompanying diversion of trucking industry revenues, would be virtually eliminated on a large portion of the nation's highway network if the highways were built to optimal standards. We begin by reformulating the standard model of optimal highway pricing and investment (see Winston, 1985, p. 78) to include highway durability as a long-run decision variable. The resulting pricing rule includes both a congestion charge related to scarce capacity, and a heavy-vehicle charge related to scarce durability. We derive expressions for marginal-cost user charges, optimal capacity, optimal durability, and long-run marginal pavement-wear cost. We then explore empirically those parts of the model related to durability.