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Rebecca SE Tan
11 August 2022
Introduction
As traffic congestion is only getting worse over time, it is clear that negative externalities are still not adequately incorporated into road usage.[1] This mispricing issue has led to detrimental environmental, social, and economic impacts, as has been outlined in Urban Traffic Congestion (US) I: The Effects of Unsustainability. In this post, I propose the solution of a country-wide congestion tolling as a way to reduce urban traffic congestion in the U.S.
Targeting the Root of the Problem: Correcting Externalities
To solve traffic congestion, it is not enough to simply increase road capacity or extend public transport. An increase in capacity merely leads to a parallel rise in vehicular traffic and is hence ineffective in relieving congestion.[2] Instead, it is most effective to change individual driving behaviour.[3] Solutions to traffic congestion must tackle the root of the problem – incorporating negative externalities to produce economic incentives for greater efficiency of the roads.[4] Essentially, a lack of road tolling leads to a ‘tragedy of the commons’, where roads are overused because the benefits of driving accrue to the individual, while the cost of traffic is shared amongst many.[5] Hence, the right toll must be implemented to raise the private marginal cost (pc) to the social marginal cost (sc) (Fig. 1). Such congestion pricing maximises the efficiency of road usage because the private benefit of an additional trip would now equate to the social costs of an additional trip at equilibrium.[6] A more efficient road usage then increases the overall welfare of society.[7]
Figure 1. Illustrates the economic model for traffic congestion. Tolls are needed to achieve maximum efficiency, where the benefit of an extra trip is equal to the social cost to everyone else. Adapted from “The Economics of Traffic Congestion”.[8]
Variable tolls
For accurate pricing of the highway, the toll should be varied according to demand, as the size of the externality varies.[9] Congestion externality is highest at peak driving times and lowest at low-flow times as additional drivers on an empty road do not slow other drivers down.[10] Hence, this essay recommends that the US adopt a pricing model similar to the existing Singapore model, where road pricing is dependent on vehicle size, route taken, and time of day.[11][12] Such variable pricing has been proven successful as it decreased traffic volume into the urban core of Singapore by 10 to 15 percent.[13]
Distribution of congestion fees
Appropriate revenue recycling can maximise overall social welfare and increase public acceptance of congestion pricing.[14][15] One such usage could be financing the transportation infrastructure or the transportation system as a whole.[16][17] For example, public support for London’s congestion pricing was contingent on the fees being spent on improving public transport.[18] Another possible use of the congestion fees is to provide support for lower-income families and drivers.[19][20]
Paced implementation
Lastly, a paced implementation may help to ease the public into the congestion tolling system. Pricing can be introduced lane-by-lane to generate a Pareto improvement[21], as those who value their time more will be willing to pay the toll, while those who value it less still have the free lanes to choose from.[22][23] One estimate finds that pricing half the lanes on all urban highways could increase social welfare by $850 per year for the average urban highway commuter.[24] This strategy is currently being tested out on a Los Angeles freeway, where only two lanes are currently tolled, but more lanes will be converted subsequently.[25] As more roads became priced, there would be fewer free options but also more revenue to offset congestion tolling for low-income drivers. Such a system also gives the public more time to prepare – people could move or experiment with carpools or different transit routes in advance.[26]
Discussion
This article has delineated my proposed solution: a country-wide congestion pricing in the US, with variable tolls, a good distribution of congestion fees, and a paced implementation. Yet, policy changes are never so clear cut – indeed, there are many fallbacks with this solution, such as a fear of heightened inequality. These challenges will be analysed in the next post. What other pros and cons can you think of regarding congestion tolling? Are you in favour of other forms of pricing other than road tolls, such as greater parking fees or fuel cost? Let me know in the comments below!
Click on the "Traffic Congestion" tag to follow this series!
Footnotes
[1] Sarah Feldman, “Infographic: It’s Not Just You, Traffic Is Getting Worse,” Statista Infographics, September 19, 2019, https://www.statista.com/chart/19410/traffic-congestion-cities/. [2] Duranton, G., & Turner, M. A. (2011). The Fundamental Law of Road Congestion: Evidence from US Cities. American Economic Review, 101(6), 2616–2652. https://doi.org/10.1257/aer.101.6.2616 [3] Ibid. [4] Pigou, A. C. (2017). The economics of welfare. Routledge. (Original work published 1920) [5] Ohta, H., & ThisseJ.-F. (Eds.). (1993). Does economic space matter? Macmillan. [6] Arnott, R., & Small, K. (1994). The Economics of Traffic Congestion. American Scientist, 82(5), 446–455. http://www.jstor.org/stable/29775281 [7] Krol, R. (2018). Tolling the Freeway: Congestion Pricing and the Economics of Managing Traffic. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3211645 [8] Arnott, R., & Small, K. (1994). The Economics of Traffic Congestion. American Scientist, 82(5), 446–455. http://www.jstor.org/stable/29775281 [9] Hensher, D. A., & Puckett, S. M. (2007). Congestion and variable user charging as an effective travel demand management instrument. Transportation Research Part A: Policy and Practice, 41(7), 615–626. https://doi.org/10.1016/j.tra.2006.07.002 [10] Krol, R. (2018). Tolling the Freeway: Congestion Pricing and the Economics of Managing Traffic. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3211645 [11] Christainsen, G. B. (2006). Road Pricing in Singapore after 30 Years. Cato Journal, 26(1), 71–88. https://ideas.repec.org/a/cto/journl/v26y2006i1p71-88.html [12] Phang, S., & Toh, R. S. (2004). Road Congestion Pricing in Singapore: 1975 to 2003. Transportation Journal, 43(2), 16–25. https://www.jstor.org/stable/20713563 [13] Chin, K.-K. (2005). Road Pricing – Singapore’s 30 Years of Experience. Www.ifo.de. https://www.ifo.de/en/node/28867 [14] Parry, I. W. H., & Bento, A. (2001). Revenue Recycling and the Welfare Effects of Road Pricing. The Scandinavian Journal of Economics, 103(4), 645–671. https://www.jstor.org/stable/3441009 [15] Thorpe, N. (2002). PUBLIC ACCEPTANCE OF ROAD-USER CHARGING. IATSS Research, 26(1), 17–27. https://doi.org/10.1016/s0386-1112(14)60078-9 [16] Litman, T. (1996). Using Road Pricing Revenue: Economic Efficiency and Equity Considerations. Transportation Research Record: Journal of the Transportation Research Board, 1558(1), 24–28. https://doi.org/10.1177/0361198196155800104 [17] Small, K. A. (1992). Using the revenues from congestion pricing. Transportation, 19(4), 359–381. https://doi.org/10.1007/bf01098639 [18] Parry, I. W. H. (2009). Pricing Urban Congestion. Annual Review of Resource Economics, 1(1), 461–484. https://doi.org/10.1146/annurev.resource.050708.144226 [19] Ibid. [20] Manville, M., Pierce, G., & Graveline, B. (2022). Guardrails on Priced Lanes: Protecting Equity While Promoting Efficiency. Escholarship.org. https://escholarship.org/uc/item/2rj35891 [21] A Pareto improvement, in this case, refers to a tolling system that leaves everyone better off. [22] Hall, J. D. (2018). Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways. Journal of Public Economics, 158, 113–125. https://doi.org/10.1016/j.jpubeco.2018.01.003 [23] Sung, W. S., & Hickman, M. (1999). Effectiveness of the Katy Freeway HOV-Lane Pricing Project Preliminary Assessment. Transportation Research Record: Journal of the Transportation Research Board, 1659(1), 97–104. https://doi.org/10.3141/1659-12 [24] Hall, J. D. (2020). Can Tolling Help Everyone? Estimating the Aggregate and Distributional Consequences of Congestion Pricing. Journal of the European Economic Association. https://doi.org/10.1093/jeea/jvz082 [25] Manville, M., Pierce, G., & Graveline, B. (2022). Guardrails on Priced Lanes: Protecting Equity While Promoting Efficiency. Escholarship.org. https://escholarship.org/uc/item/2rj35891 [26] Ibid.
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