Electronic tolls mean higher tolls

by on July 4, 2007 at 7:35 pm in Economics | Permalink

After an electronic system is put in place, tolls start rising
sharply. Take two tollbooths that charge the same fee and are in a
similar setting – both on highways leading into a big city, for
instance. A decade after one of them gets electronic tolls, it will be
about 30 percent more expensive on average than a similar tollbooth
without it. There are no shortage of examples: the Golden Gate Bridge,
the George Washington Bridge and the Tappan Zee Bridge, among them.

“You may be less aware you’re paying the toll,” said Ms. Finkelstein, now an associate professor at M.I.T., “but you’re paying a higher toll than you used to.”

Here is the full story.  One thought is the Brennan-Buchanan government rapaciousness angle, layered on top of behavioral imperfections.  This result is also why electronically extracted tolls might reduce congestion less than we would expect; they’re not sufficiently noticed.  Mark Thoma suggests some other interpretations of the data, namely that the electronic toll, by lowering traffic, inconvenience, and queuing to pay tolls, allows the highway authorities to raise the monetary fee to restore the previous net price.

1 Ted July 4, 2007 at 8:31 pm

I vote for Thoma. I’d certainly pay extra to avoid the queues at tollbooths (Delaware used to be especially bad, with mile-long backups). Indeed, I’d prefer to see $5/gallon gasoline with the concomitant reduction in traffic on 66.

2 Mason July 5, 2007 at 12:48 am

I think awareness is definitely an issue – people are more vulnerable to price increases when they’re not physically handing over money. The swipe of a card or an RFID tag is so smooth that it can distance the buyer from a full realization of the cost.

I see this in students at my school – they have prepaid dining accounts with a separate account for campus convenience stores. Everything is paid for with a campus ID card, not cash.

The result is that they’ll pay $6.50 for a box of cereal and $3.50 for a box of Pop-Tarts because “it’s not real money.” That’s a pretty steep markup, and I promise you they would not hand over $6.50 cash at the grocery store for a box of Cheerios.

3 Dan Hill July 5, 2007 at 2:09 am

Well a plausible solution may be that electronic tolling only gets introduced where the market will bear increased tolls to justify the investment? Or that the investment is attracted to the opporunities with the highest potential rate of return – markets which will bear higher tolls. Either way, this would mean that it’s the fact that the tolls are lower than the market will bear that attracts electronic tolling. Quite different from “electornic tolling causes toll increases.”

4 anonYmouse July 5, 2007 at 5:24 am

Ted

It’s classic microeconomics why a gasoline tax is *not* a good congestion tax. You are not paying a gasoline tax by when you are imposing the congestion on other drivers ie the cost you impose (the time cost) is not related to the tax you pay.

The best situation is where you have both a toll road (or lane) and a free lane, in parallel. Then you can actually determine the time price the consumer is willing to pay.

(toll road companies are clever, though. See the Birmingham bypass in the UK, also the 407 highway in Toronto. They massively weight the tariffs on trucks, because road damage varies as the cube of the axle weighting (double the weight, 8 times the damage). This pushes the trucks onto the free roads, where the public sector/ general taxpayer picks up the tag).)

In fact, gasoline taxes make good government taxes, because of the inelasticity of demand: a high tax incidence doesn’t cause a big change in taxpayer behaviour, hence a small welfare loss. See also ‘sin’ taxes like tobacco and alcohol.

The argument that a gas tax, for example, makes a good carbon tax is likely specious. A carbon tax in electric power generation would have a far higher effect on CO2 emissions (because a power company can substitute in its production mix).

5 Yancey Ward July 5, 2007 at 9:33 am

I would suggest rewording that last part to “allows the highway authorities to raise the monetary fee to collect the previous net price”.

6 josh July 5, 2007 at 11:19 am

Certainly seems to make sense that the bariers to entry in the toll road market would prevent the price from falling toward marginal cost. You would expect anything that raises the demand for these roads to raise prices wouldn’t you? The Thoma position seems obvious.

7 Anthony July 5, 2007 at 3:39 pm

Tolls on California bridges have risen as much for people paying cash as for those who aren’t. For that matter, the toll on the Golden Gate Bridge is lower for people with FasTrak (the electronic toll system) than for cash customers.

The FasTrak usually saves time, though the relative scarcity of FasTrak lanes negates most of that advantage during commute hours.

8 Sebastian Villarreal July 5, 2007 at 5:15 pm

Perhaps this is a question of price stickiness similar to the coca cola machines of old. It is not unreasonable that cash tolls raise their rates slowly simply because small increases in tolls would be hugely uncomfortable for toll payers and toll chargers. (imagine paying a toll of 19 cents: you would need to use at least 6 coins to pay exactly). Imagine the queues if people had to count out tolls that were difficult-to-pay cash amounts.
Electronic tolls of course do not have this problem.

9 Nathan July 5, 2007 at 7:09 pm

I’m with Nick, I think it has a lot to do with price perception. I recall a few studies regarding spending in cash vs debit cards. If I remember correctly people spent more using a debit card when compared to cash. I think there is something similar involved with VAT vs a sales tax.

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