Congestion Pricing Saves Time and Money

The Highway Trust Fund will soon be broke. Gasoline tax revenues haven’t kept up with spending, and it’s likely that demands for new highway infrastructure will grow in the future.

Joseph Kile, head of the microeconomics studies division at the Congressional Budget Office, discussed various policy options to deal with this funding gap in his testimony to the Senate Finance Committee on Tuesday. Most news coverage of Joe’s testimony emphasized his suggestion that taxes based on miles traveled, rather than gasoline consumption, might be a better way to finance America’s highways. After all, miles traveled is, along with weight, the primary driver of wear and tear on the roads. And it’s a decent proxy for the benefit that drivers get from having functioning roads.

That’s an interesting idea, but I’d like to highlight another important point that Joe made: the amount of infrastructure America should build depends very much on how we price it.

If a six-lane highway gets congested, that doesn’t necessarily mean that we need to build new lanes or lay out parallel roads.

We could charge congestion fees instead. That would discourage driving at peak times and thus speed traffic without new construction. That’s what London and Singapore famously do to limit traffic in their downtowns. And it’s something we should more here in the United States.

Joe reports estimates from the Federal Highway Administration (FHWA) that congestion pricing could decrease highway spending needs by 25 to 33 percent:

The federal government spent about $43 billion on highway investment in 2010. To maintain the same quality of highway performance would require an average of $57 billion in annual federal spending in coming years, according to the FHWA. That price tag drops to only $38 billion, however, if we make good use of congestion pricing. Congestion pricing would thus save federal taxpayers almost $20 billion per year; state and local governments would save even more, since they pay for more than half the costs of these projects.

Congestion pricing can make our roadways work better, save Americans precious time, and reduce federal, state, and local budget pressures. That a great combination in this time of growing infrastructure needs and tightening budgets.

4 thoughts on “Congestion Pricing Saves Time and Money”

  1. goverment needs put back the cost of living
    increase for the poor and those who are on
    already on social security&social security
    disibilty.That was wrong.Plus add the the last three years of income to there social security checks.thats only fair.its the poor thats not mention in this country very much.I
    THINK IS VERY WRONG . I THAT SHOULD BE
    VERY MUCH ADDRESS.SINCERELY,WILTON E.RICHARDS

  2. Nobody likes sitting in traffic, so motorists already spread traffic out to an extent commensurate with their ability to do so. Limitations include rigid requirements from places of work (particularly for hourly workers) and the absence of substitutes (London, with an extensive public transportation system, is not a good model for how most American cities would respond to congestion fees). Direct or indirect pressure on employers might lead to more flexibility on work hours in some cases, but there would be costs to this (or to improving public transportation). In the absence, you’d probably end up with a relatively inelastic response by motorists, with some shifting taking place that creates additional uncaptured dead weight loss (like blue collar workers arriving at work earlier than necessary and sitting around). One could argue that global efficiency might improve a bit by internalizing more of the congestion externality, but I think that the magnitude of the benefits are much less than hypothesized…most would be a shift of costs (which may well be appropriate).

    On a related note, it’s interesting to think about the Washington Metro system as a comparison, with higher fares during peak hours. Given a similar lack of flexibility for passengers, is it really appropriate to discourage rush hour usage and have more drivers as a global DC area transporation solution? It’s more efficient to run full trains, and the capital cost for incremental trains is probably a small percentage of the overall cost of building and maintaining the tunnel system… In fact, does it really make sense to charge for using the system at all? Making it free would reduce some costs (for the fares system) and increase efficiency (system entry) while shifting incremental passengers into the system and helping to gain greater benefit from the overall investment.

    So, overall, why not charge a big congestion fee on drivers and simultaneously eliminate fares for the DC Metro?

    DSM

    1. “Nobody likes sitting in traffic, so motorists already spread traffic out to an extent commensurate with their ability to do so.”

      True to an extent, but this does not imply that each driver chooses her road use optimally when considering her impact on all other drivers (as she would under congestion pricing). This is sometimes known as Braess’s paradox in the relevant literature; and the difference between the optimal outcome and the Nash equilibrium is known as “price of anarchy”.

      1. Interesting paradox. I’m not knowledgeable about the transportation arts and I agree that congestion pricing may make a bit of difference at the margin, but I think that real world situations are likely to be more sticky than expected when individuals have choices (as opposed to closing roads).

        Take, for example, a situation where there are two roads from A to B, a shorter one through the city that becomes congested and a longer one around the city. Absent congestion pricing, individual choice might lead travel times to be similar for the two routes, with route selection driven by driver heterogeneity (some might prefer a more direct route, others prefer more constant speed). Now introduce congestion pricing on the city route. In the short term, drivers will shift to the longer road and improve overall efficiency (if the system was at a point where city road performance was relatively sensitive to traffic volume). However, in the longer term, if the travel time diverges on the two roads, time (but not cost) sensitive drivers will shift from the longer road to the city road until the marginal driver is indifferent between the cost and time differences. Unless the road is highly sensitive to a small change in volume or the fee is substantial relative to most drivers’ WTP for time savings, I would suspect relatively little change in overall volume (though individuals will reassort themselves according to their preferences).

        Note that the introduction of fees would also require some sort of collection system which would actually increase the time required to take the city route as well.

        DSM

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