Autos and Highways

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					      Autos and Highways

Three issues: Congestion, Air
Pollution, and Accidents
    I Congestion: Equilibrium versus
    Optimum Traffic Volume
   A. Demand for Urban Travel
   Demand curve shows for each trip cost how many
    travelers will use the highway
   Marginal benefit curve – for each traffic volume, how
    much the marginal traveler is willing to pay for the
    highway trip
   B. Private Trip cost – sum of monetary cost and private
    time cost of an individual
       Have monetary travel cost (fuel, etc)
       Time cost – opportunity cost of travel time
   Congestion externality: each additional driver slows
    traffic and increases travel time for all other drivers
    Equilibrium vs. optimum
   External trip cost – monetary value of the congestion
    externality (evaluated by the opportunity costs of
    increase in travel time when traffic volume increases)
   Social trip costs = sum of private trip cost and
    external trip costs
   Each individual uses the highway if marginal benefits
    (as measured by demand curve) > private trip costs
       Traffic volume = 1600
   Optimum number of drivers is when marginal
    benefits= social trip cost
       Traffic volume = 1400
   Drivers ignore their impact on others
   Trip Cost

                           Social trip cost

                                               Private trip cost


                                          Demand = marg. benefit

               1,400   1,600                  Vehicles per lane per hr
Policy response – Congestion
   Congestion tax to internalize the
    externality created by too many drivers
   Congestion tax of $4.34 (9.14-4.80)
    would make the private trip cost=social
    trip cost and the equilibrium number of
    drivers would fall from 1600 to 1400.
   Trip Cost

$11.40                       Social trip cost
                             Net gain from congestion tax

               A        Congestion               Private trip cost
                        Tax = $4.34

5.48                         B

                                            Demand = marg. benefit

               1,400   1,600                    Vehicles per lane per hr
Four ways a congestion tax
can decrease traffic volume
   Modal substitution – choice bus, carpool,
   Change time to off-peak – go at a less
    crowded time
   Change routes to one that is less
   Location choice – move closer to work or
    find job closer to home.
Benefits and costs
   Costs more to drive now
   Time on highways decrease as lower
    traffic volume
   Net impact depends on what happens to
    the tax revenue collected
   Could substitute congestion tax for
    gasoline tax to pay for highways
   Could redistribute to all citizens (highway
    users and non-users)
Peak versus Off-Peak travel
   Tax must vary by time (rush hour or not) and
    space (congested or not)
   Want peak-period congestion tax to be higher
   In San Francisco – need 65 cents per mile on
    urban highways, 21 cents on suburban, and 17
    cents on fringe. Off peak charge 3-5 cents.
   Twin Cities: average 9 cents – would decrease
    volume by 12% on average and 25% on most
    congested roads.
Implementing and experiences
   How to collect the tax is big problem
   Toll booths slow roads-create even more
   VIS – vehicle identification system – send
    bill at end of month
   Debit devise – decreases as car passes
   Singapore – Area Licensing
III Alternative to Congestion Tax
   A. Gasoline Tax: increase cost of all auto travel
       No incentive to switch times or routes
       Need to charge $9.55 per gallon to have impact
   B. Parking tax – switch to other modes
       If impose on peak drivers, may change time
       No incentive to live closer
       Employers should stop subsidizing parking
   C. Capacity expansion/traffic design
       Widen highway to increase capacity
       Trip costs decrease, volume increases
       More people may decide to drive
Alternative to Congestion Tax cont.
   D. Subsidize Mass Transit
       Decrease relative cost of transit people may
       Autos are underpriced due to external cost
       May underprice transit and increase ridership
        above optimum level if subsidize
   Congestion tax most efficient to solve
    traffic volume issue
    IV. Congestion and Land-use Patterns
            Increased commuting costs determine
             the slope of the residential bid-rent
             function- shift from R0 to Rc (assume no
             redistribution of tax revenue)
               Congestion tax increases     cost of commuting-
$                residential bid-rent will be steeper
                Pay less at all distance away from the city
                Gap gets bigger with distance as tax gets
                Congestion tax – more compact city as
                 people want shorter commutes
Congestion and labor market
   B. Urban labor market
       Net welfare gain to city residents if highway
        volume decreases – increases attractiveness
        of the city- people move to this city
       Increase in labor supply causes wages to
       Firms demand more labor as wages fall
       Lower wages and larger workforce
       City with congestion tax may grow –
        improves efficiency of transportation network
        and relative attractiveness of city.
V. Autos and Air Pollution
   Cars emit pollution – “greenhouse gases”
       Causing global warming
   2/3 of carbon monoxide emissions
   2/5 of nitrogen oxide
   Clean Air Act (1963 plus amendments)
    legislated decreases in emissions
   States use vehicle inspections; parking
    restrictions and “cash” for old cars
    programs to achieve emission decreases
A. Effluent fees
   Drivers base travel decisions on private trip
    costs (PTC) but PTC<Marg. Soc. Costs (MSC)
    due to emissions
   People drive too many miles and drive cars that
    pollute too much
   How can we internalize this externality – make
    drivers pay for the pollution they create
   Install monitoring devices on every car to
    measure emissions
   Expensive – must be other methods to charge
    for pollution
    Methods to implement
   One time pollution tax on the car
       Based on lifetime emissions and the cost per
        unit emission
       Car buyers would pay more for cars that
        pollute more – demand cleaner cars
   Gasoline tax – increase private cost of
    auto travel and decrease miles driven
       Everyone pays the same whether clean or dirty
       Tax between $0.60-1.48
Transit subsidies
   Subsidize mass transit – pollution per
    passenger is lower
   Decrease costs so more people will ride
   If subsidized cost of transit<MSC – may
    have too much transit riding
   Question of whether the air quality
    benefits dominate the resource costs
VI. Auto Safety
   Accidents kill and injure people
       10.7 million accidents in 2005
       Half a million fatalities (62,000 pedestrians)
       Leading cause of death for 1-24 years old
       Accidents disrupt traffic flows and lead to
   Government has set safety legislation
    requiring certain safety features.
       Head restraints, padded dashboards,
        seatbelts, shatterproof windshields, airbags
   Do they “work”?
A. Effect of Safety Regulations
   Safety regulations decreased # of fatalities by
    about 30% (BENEFITS)
   Response of drivers to safety regulations:
       Theory of risk compensation: Drivers may feel
        “safer” and drive more reckless and cause more
        collisions (COSTS)
   B. Optimum Speed
       When someone crashes, less likely to get injured badly
        at lower speed
       Higher speed increases the probability of crashing
       Expected crash cost = probability of crashing*total
        cost of the crash
       Expected cost of crash decreases at every speed with
        the safety regulations – so people are “reckless”
                            Original Marginal Cost
$    Marginal Benefit

                                            Marginal Cost
                        A                   with safety regulations


    44 46         48    50 52 54 56            Speed
                                               Miles per hour

Optimum Speed and Safety Regulations
Graph Analysis
   Marginal benefit – how much time do you save
    by going faster
   Marginal cost – the increased expected accident
    cost: more accidents at higher speed and worse
   With safety regulations – marginal costs shift
    down to right
   Initially, MB=MC at point A
   After safety regulations, people feel like cost has
    decreased so new point where MB=MC at point
C. Net effect
     Collision rates were higher following the
      implementation of safety regulations
     Pedestrian death rate were higher
     Death rate for pedestrians and bicyclists are
      inversely related to number of safety features
     Drivers in safe cars take more risks and
      endanger others
     Overall though, deaths decreased by 30%
Smaller Cars and Safety
   Small cars are good cuz use less fuel and cause
    less air pollution
   Take up less space on street and highway- less
    congestion and fewer parking problems
   But are also less safe – so are benefits>costs?
   Travel in small cars more dangerous for
   Less lethal for pedestrians and bicyclists
   Small cars okay in 1 car accidents (137,000
    fatalities in 2005 due to hitting fixed object)
   Need to drive more cautiously to avoid collisions
   3 most popular trips
       b/w suburbs (40%); within central city
        (33%); suburb to central city (20%)
   4 of 5 workers commute by car, truck or
   Drivers base travel decisions on private
    not social costs so too much driving
   Congestion tax internalizes externality
   Need to impose a pollution tax on new
    cars so people will pick cleaner cars.

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