Economic analysis of vehicle infrastructure cooperation for driving automation

The current approach to driving automation has been primarily vehicle-centric. However, a vehicle-infrastructure cooperative approach, in which infrastructure and vehicles cooperate to perform the different driving tasks, may prevail in enabling automated driving. This paper conducts an economic analysis of vehicle infrastructure cooperation for automated driving. In doing so, we present a model that captures investment decisions in vehicle automation and infrastructure digitalization and their effect on travelers’ purchase and travel decisions. Our analysis shows that, under certain conditions, equipping both infrastructure and vehicles is socially optimal. However, by analyzing strategic interactions between infrastructure support service providers and automakers, we show that lack of coordination between these two actors results in suboptimal investment in vehicle automation and infrastructure digitalization. Especially, when these two technologies are complementary, service providers are reluctant to invest in digital infrastructure and vehicle manufacturers tend to over equip their vehicles so as to avoid relying on infrastructure technology. Thus, we conclude by showing that better coordination between automakers and service providers – under the form of profit sharing – is welfare-improving and could potentially yield the socially optimal levels of automation and digitalization.