Chapter 11 Autos and Highways

Urban Transportation

Three basic problems caused by autos

• Congestion– What is the optimum level of congestion

• Pollution– Alternative control policies:

pollution taxes & gas taxes

• Highway accidents– Can government do anything

Modal Choice of Transportation

What is the Optimal Level of Congestion

• Distance of highway is 10 miles• Monetary travel costs are 20¢ per

mile• Opportunity cost is 10¢ per minute

• Demand for travel: The marginal willingness to pay of the marginal traveler

Table 11-1 O’Sullivan

Volume

Trip Time

ΔT per Driver

ΔTotal Travel Time

External Trip Cost

Private Trip Cost

Social Trip Cost

Marginal Benefit

200 12.00 0.000 0.00 0.00 3.20 3.20 31.10

400 12.00 0.000 0.00 0.00 3.20 3.20 27.44

600 12.80 0.007 4.20 0.42 3.28 3.70 23.78

800 14.80 0.013 10.40 1.04 3.48 4.52 20.12

1000 18.00 0.019 19.00 1.90 3.80 5.70 16.46

1200 22.40 0.025 30.00 3.00 4.24 7.24 12.80

1400 28.00 0.031 43.40 4.34 4.80 9.14 9.14

1600 34.80 0.037 59.20 5.92 5.48 11.40 5.48

1800 42.80 0.043 77.40 7.74 6.28 14.02 1.82

2000 52.00 0.049 98.00 9.80 7.20 17.00

Congestion Tax

• A tax that equals the difference between social trip cost and the private trip cost, will make both costs equal

• This tax will reduce the number of trips to the optimum.

0.00

5.00

10.00

15.00

20.00

25.00

30.00

200 400 600 800 1000 1200 1400 1600 1800 2000

Number T r i ps

P r ivate T r ip Cost Social T r ip Cost Mar ginal Benenfi t

Benefits and Costs from a Congestion tax

• People who continue using the highway pay the tax, but have lower travel costs

• People who stop using the highway do not pay the tax, but forgo the benefits from using the highway

• Generates revenue

Efficient Congestion Cast

• Taxes may vary between peak and off-peak travel

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

0 400 800 1200 1600 2000

Number of Tr ips

P r ivate T r ip Cost

Social T r ip Cost

Mar ginal Benefi t Off -P eak

Mar ginal Benefi t P eak

Responses to Congestion Taxes

• Modal Substitution• Time of Travel• Travel Route• Location Choices

Alternative to Congestion Taxes

• Gasoline Tax– Increases costs of all automobile travel– Does not encourage changes in time of travel

• Parking Tax– Charge different fares parking fares for cars that

arrive/leave at different times– Only affects peak period drivers– Does not change travel route or location choices– Only affects cars who park in congested areas

• Congestion Zone Taxes

What happens if we increase capacity?

Traffic Volume

$

Demand

Private Cost Wide Highway

Private Cost Narrow Highway

Vo Vw

Subsidies for Transita) Free Market (B,R) b) Subsidy

Transit (S,C)d) Congestion Tax (A,Q);

D Sub

$

A

Social Trip Cost Private Trip Cost

$

T

Private Cost under Subsidy

Marginal Social Cost

D TaxD

D

AB

C

R

S

Q

Transit Subsidy (Cont)

• A subsidy on transit is less efficient than a congestion tax, because it under prices transit raising ridership above its optimum level

Highway Pricing and Traffic Volume in the Long Run• Government can design a policy

with the optimal road volume and the optimal road width?– Derive Average Total Cost Curves– Derive Long Run Average and

Marginal Cost Curves (CRS)– Pick the optimum traffic volume and

road width– Pick the congestion tax that generates

the optimal volume

Who pays for the expanded capacity?

Average Total Cost Curves

• Define ATC=ARC+PTC• There will be an ATC for each size

of freeway• U-Shaped because of 2 effects:

– Cost Effect– Congestion Effect

Long-Run ATC Curve

• For a given volume of traffic, what is the most efficient average total cost?

• LRAC envelops the minimum of ATC curves

• Long Run Marginal Cost: Long Run Social Cost of an additional driver

Optimum Volume and Road Width• MC=MB• Congestion Tax encourages the

drivers to drive a volume of V**• Recall:

– ARC=ATC-PTC – Congestion Tax=STC-PTC

Congestion Tax covers the price of the road!

• Congestion Tax=Average Road Cost iff Average Total Cost = Social Total Cost

• Social Trip Cost is the short run marginal cost of one additional driver

• Revenue Sends a signal: – Increase highway size if revenue>ARC

Autos and Air Pollution

• Autos and trucks generate air pollution

• Externality Problem:Drivers base their decisions to drive

or not on the marginal private cost of driving which is less than the marginal social cost of driving

Congestion Tax and the Monocentric City?

u

$

RoR1

Pollution Externalities

• Pollution externalities causes:– People drive cars that generate a lot

of pollution– People drive too many miles

• Solutions: People should pay for the pollution they generate

• How to estimate the cost?

What can be done?

• One time pollution tax on automobiles that equals the pollution the car generates in lifetime

• Use a gasoline tax– Affects all cars, not only the ones who

pollute– Reduces pollution be reducing miles

driven, not by encouraging people to have cleaner cars

Auto Safety

• Auto safety leading cause pf death among 1-24 years old population

• 42,000 deaths• Safety Regulations: Air bags,

seatbelts, etc…– Theory of risk compensation

• Optimum SpeedTimeofValue

Speed

CrashCostE__

)(

The value of a life

• Ashenfelter and Greenstone (2002)• Use state variations on speed limits to

valuate a life. In 1987 21 states moved rural interstate speed limit from 55 mph to 65 mph

• Increase of speeds of 3.5% associated with 35% increase in fatality rates

• 125,000 hours saved per lost life• Each fatality is valuated in 1.54 million

dollars