Congestion Pricing on the Road and in the Air

by on January 16, 2008 at 7:39 am in Economics | Permalink

Privatizing toll roads in the U.S. may result in significant diversions
of truck traffic from privatized toll roads to "free" roads, and may
result in more crashes and increased costs associated with use of other
roads, according to a new study.

It’s interesting how congested, dangerous, public roads are framed as a problem of safe, fast, toll roads!  The problem, however, is easily solved.  Price all the roads!  Unrealistic?  Foolish?  Not at all, especially not for large trucks which are the focus of the above study.  The key is to tie the price to the truck not to the road.  With today’s GPS technology trucks can be outfitted with GPS devices that can price all roads according to time, congestion, quality and a variety of other factors.  In fact, just such a system is working in Germany right now.

In other congestion news the DOT is finally allowing airports to charge landing fees based on congestion.  This is good news for travelers who can thank the economically-astute, Harley riding, no-nonsense Secretary of Transportation, Mary Peters.

By the way, Transportation Secretary Peters wrote the foreword to Street Smart: Competition, Entrepeneurship and the Future of Roads, a very good book on road pricing and privatization edited by Gabriel Roth and published by the Independent Institute (where I am the director of research.)

A student of economics January 16, 2008 at 7:56 am

Congestion pricing is a great idea. Americans waste hundreds of millions of hours in congestion unnecessarily. The value of that time is a pure loss — it benefits no one. Alex is right that all roads should be priced, although for most roads when their is no congestion, the congestion portion of the price would be zero. In fact, an optimal pigovian congestion tax in California would actually be large enough to eliminate all other taxes in California. That would create additional benefits by reducing the loss from taxing work and investment.

The problem pointed out in the study Alex quotes is that there are large externalities from pricing any one road, not to mention intersections. This makes privatization problematic. A profit-maximizing toll road owner will set the wrong price, destroying as much as 100% (or more) of the potential benefits of pricing, because of externalities on other road-owners and drivers. Thus, privatizing any subset of roads doesn’t work.

We could sell all the roads to a single monopolist. This would internalize many of the externalities, but then we have the classic monopoly problem which creates its own inefficiencies.

Optimally, we should sell all the roads to a single monopolist and then have the government regulate the prices that monopolist charges. We could call that government-regulated monopolist the “Federal Highway Administration”.

save_the_rustbelt January 16, 2008 at 8:17 am

Any study of Ohio’s toll roads should mention the political corruption and double cross that caused the Ohio Turnpike to remain a toll road after it was to be a regular interstate.

Give politicians Pigovian funds and they will find a new way to be corrupt – Ohio taxpayers know that.

spencer January 16, 2008 at 9:14 am

The source you linked to originally on tolls in Germany agrees with the last comment that only some roads in Germany are priced.

A student of economics January 16, 2008 at 9:23 am

A much larger gas tax would have many of the same benefits as congestion pricing. Of course, its a crude and imperfect instrument since driving on uncongested roads would also be “priced”, but it’s would be an improvement over the current queuing-based allocation system for traffic. Similarly, charging for insurance by the mile instead at flat rates would be an improvement. Using GPS or related technologies, as Alex suggests, would be even better, since it could be made variable across time and space.

It seems like a way to address the politics of the issue is to bundle congestion prices or taxes with cuts in other taxes or even 100% rebates. Here are 3 examples:
1. Cut social security taxes by $100 billion for every $1 of gas tax (roughly revenue neutral).
2. Send a lump-sum annual check to every licensed driver or every U.S. Citizen, using the congestion revenue.
3. Deposit a lump sum check into each American’s personal retirement account, using the congestion revenue.

In each case, there would be more winners than losers from the policy. Furthermore, the policies are not regressive — on average, high and low income people benefit equally. Drivers benefit from less congestion. Thus, a reasonably skillful politician should be able to make the case.

jorod January 16, 2008 at 9:33 am

Great idea. Make the people who use the roads pay for them. As long as it is run by a private entity because politics will screw it up!! In Illinois, people who pay cash pay more while those who use electronic credit pay less. The attempt to raise tolls becomes a political football. Bureacracy full of patronage workers.

martin January 16, 2008 at 10:27 am

Imposing a “real” cost on waste disposal might actually cure the road problem as well as several others.

Al January 16, 2008 at 12:32 pm

I thought Libertarians didn’t like putting GPS devices on things!

I kid, I kid . . .

Rather than auctioning the road off to a monopolist, the revenue goes to the firm who repairs the most pot-holes! It will be an entertaining fight to the death . . .

DanC January 16, 2008 at 2:04 pm

The issue of privatization, not congestion taxes, is the problem. If you turn the toll roads over to private companies you can create externalities on other, public, roads. The private operators have little to gain from worrying about these externalities. However a state run congestion tax could adjust taxes on all roads and get the results that Prof Cowen wants.

You could, I suppose, privatize the collection of taxes on all truck traffic in a state. But it seems to me that the state already has the infrastructure to police and collect these taxes. The transactions costs, especially on the margin, could be much lower for the state.

John B. Chilton January 16, 2008 at 3:34 pm

I’m sympathetic to the suggestion of pricing all roads (zero for those that are uncongested) and doing so in real time given that current technology can do so.

But in addition to the problem of shifting of congestion from priced to unpriced roads another problem I’ve seen with trucks is that we will sometimes simply stop when prices or congestion gets too bad. And when they stop they take up space where ever they park (e.g., near the shoulder of the road, causing more congestion, or in costly to defend private property, etc.) So there can be unintended negative consequences.

John Kunze January 16, 2008 at 3:48 pm

The opportunity cost of truckers use of roads is not simply proportional to distance traveled. Whether the road is heavily used already matters.

Charging proportional to fuel use is excessive for some roads, too little for others, so it does not give the incentives to use the roads economically.

MJR January 16, 2008 at 6:04 pm

If it were possible to price every stretch of urban and suburban road, and those few rural miles with recurring congestion, I would say to go for it. It would take coordination, since cars are registered by fifty states, unlike trucks which are registered with USDOT. But even assuming the acceptability of a GPS unit in every car, road privatization is tricky; there is room for many slips between cup and lips. The interstate highways were built using public money, collected in part from drivers paying gas taxes but also – especially at the beginning and the end of that period – from sixty years of Federal general funds. The smaller Federal highways were built largely using public funds and land, over two centuries, and with significant effort by political and non-political public agents.

I shudder at the notion of Secretary Peters presiding over the transfer of the highways to private operators: the profits of a monopoly system rightly return to the public, not the private sector, as most posts on this thread seem to agree.

Peters is not quite no-nonsense; last year she appeared to say that bikes weren’t transportation, then took it back.
http://www.streetsblog.org/2007/11/13/peters-clarifies-bikes-are-not-transportation-comments-kinda/)

What she hasn’t yet apologized for is making it seem like the Minnesota bridge collapse was due to lack of money for bridges. Turns out that the states don’t spend all the money given to them, and the bridge collapsed because – surprise! – it was designed badly and built on the cheap.

michael January 17, 2008 at 10:31 am

Total congestion pricing has many problems, but as an interim strategy it has benefits.

The Pennsylvania Turnpike is an obsolete highway with narrow lanes, tight cornering, non-existent medians. Making it doubly dangerous is the large quantity of truck traffic. Congestion pricing would allow the Turnpike to lower rates in the 8:0pm-5:00am time frame (wekends too) and significantly add capacity to the road by shifting a portion of the heavy traffic to less congeted hours.

A student of economics January 17, 2008 at 1:55 pm

Yes, it was in jest.

The idea was to accept and start with the libertarian premise that prices are typically superior to queuing for allocating resources. However, then consider the results of privatization and follow the implications to their logical conclusions. IMHO, at least, the path leads back to government ownership of roads.

However, that does not rule out using congestion prices and fees, or as some might call them “taxes”.

A student of economics January 17, 2008 at 3:22 pm

“I guess I fail to see the basic win with congestion pricing”

There are on the order of $100 billion dollars wasted due congestion every year. It costs the average commuter the equivalent of 8 full working days every year, and its getting worse. See http://www.apta.com/research/info/online/congestion.cfm

If we had optimal congestion pricing, this cost could be eliminated. You would zip into work just as fast at 8am monday as you could at 5am Sunday morning. However, you would have to pay the congestion price if you picked a peak time to travel

Roads are already priced today, but in wasted time, not dollars. The people who “pay” for the use of the roads during rush hour do so by sitting and wasting productive time. Those unwilling to pay that price, don’t. They telecommute, shop later, shift their work hours, move closer to work, take public transportation or move to another city. The problem is that the payment of wasted time benefits no one. Allocating roads via willingness to sit in traffic is like paying a price, and then throwing the money collected into the ocean.

However, if the price were in dollars, those dollars could be used to cut other taxes, or pay for services, or some of each. That’s a lot of money and time, year after year.

That’s the benefit.

A student of economics January 17, 2008 at 7:41 pm

Optimal congestion prices would be high enough to eliminate congestion during peak hours. They would certainly lead to faster commute times as a result. See London and Singapore for (very imperfect) examples of this.

If your employer won’t let you work during different hours this doesn’t matter as long as a) there are enough other people who can change their behavior at the margin, and/or b) you can change your own behavior by moving, using other transport methods, carpooling, telecommuting, changing jobs, or lobbying for a change in policy. Of course, if you keep commuting during prime hours, you’ll pay a price high enough that it will lead enough others to change their behavior that you have a speedy commute.

In general, it doesn’t take much of change on the margin to dramatically reduce congestion. In fact, highways actually have a lower throughput after a certain point as more and more people try to drive on them. If the price is high enough, then we won’t go past that optimum number of cars attempting to get on the highway. This can actually result in just as many people, or more, actually getting to their destination per hour as without pricing.

The elimination of congestion would occur through myriad small and large changes in behavior, many of which a central planner couldn’t even predict. Each individual will look at the cost of using the highway and make their own decisions about how to optimally use this resource in the context of his or her overall situation. Prices are how we allocate most other goods and services and that seems to work pretty well.

cheap mesos January 1, 2009 at 9:10 pm

And the more cheap mesos is very good for you.

summer May 13, 2009 at 9:10 pm

all the things are not by a short time to creat. so we should find the root of the reason

jackson May 13, 2009 at 9:12 pm

Is it realistic?

Hermes September 11, 2010 at 11:21 pm

all the things are not by a short time to creat. so we should find the root of the reason

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