Cars and Highways. Economics 312 Martin Farnham

Transcription

1 Cars and Highways Economics 312 Martin Farnham

2 Travel to Work in Canada Cars are the most popular form of transportation in Canada Average commute to work in 2001 was 7.2km, up from 7km in in 8 travels more than 25km to work 13.5 million Canadians travelled to work on Census Day % used public transit (twice as high as US) 74% drive cars (83.5% in US) 6.9% rode as passengers 6.6% walked 1.2% cycled Victoria holds title for most commuting by foot, cycle (15.2%, total; avg commute<5 km)

3 Travel to Work--Trends Solo car use has risen since 1996 Walking fell Cycling rose slightly Public transit use rose Carpooling declined The longer term trend toward more car use has been overwhelming Men drive more than women Women commute shorter distances, more likely to walk or take public transit than men.

4 Case Studies Toronto CMA: 2.4 million workers in 2001(nearly 18% of workers in Canada) 22% took public transit (transit more popular in cities) 65% drove to work 6% worked at home Vancouver CMA: 900,000 workers in % took public transit 72% drove to work 6.5% walked 1.9% cycled 8% worked at home

5 Primary Externalities from Driving Road congestion Common to most cities around the world; especially big ones. Pollution Greenhouse gas emissions Particulate pollution==>asthma, etc. Noise pollution Injuries to others

6 Congestion Road congestion is a classic externality, like pollution When you drive you only take cost and benefits to yourself into account Don t consider the cost you impose on others by being on the road (and slowing others down) External cost Neither do other drivers In equilibrium, we would expect that for driving, MSC>MSB (not efficient)

7 Consider Simple Model of Road Use Assume: 10 mile 2-lane highway connects suburbs to city Car travel costs 20 cents per mile (gas+wear) Time costs 10 cents per minute (note: this implies wage is $6/hr) Demand for travel Decreasing in cost of travel (car plus time costs) Private and Social costs of travel Suppose trip time is increasing function of amount of traffic on the road; means private marginal cost of a trip will be higher, the more trips others take Each person on the road slows others down; so there s also a marginal external cost associated with each trip taken.

8 Model of Congestion Equilibrium As in any market, we expect equilibrium to be where MPC=MPB Note that in equilibrium MSC>MSB: implies that equilibrium is inefficient Efficient allocation is where MSC=MSB Left to its own, this market will produce too much travel Deadweight loss given by triangle between Q eff Q eq MSC and MSB $ Market for Urban Travel DWL Q eff Q eq MSC MPC MPB=MSB Trips per Day

9 Correcting a Congestion Externality Basic problem: no driver takes into account external cost she imposes on others A tax on driving set equal to the marginal external cost at Q eff would induce market to move to Q eff Now each driver has a new MPC curve (MPC+tax) Each driver will set MPC+tax = MPB If correctly chosen, this yields efficiency $ Congestion Tax t= Q eff Q eq MSC MPC+t MPC MPB=MSB Trips per Day

10 Congestion Tax Applying the congestion tax eliminates the DWL that was originally present in equilibrium Social Welfare rises by an amount equal to DWL The tax will generate winners and losers Non-drivers win, because they get some of the revenue (allows other taxes to be lowered) Drivers tend to lose (though those with high time costs may win--reduction in congestion may more than compensate them for the tax they pay) The additional social welfare can be used (in theory) to compensate losers; in theory everyone can be made better off with the tax because now there is more social welfare to go around.

11 Peak vs. Off-peak Travel Demand for highway use varies over the course of the day (and week) This implies a demand curve that is shifting in and out over time As demand curve shifts, so does socially optimal level of traffic Therefore efficient congestion pricing will need to vary according to where the demand curve is Congestion tax will be higher when demand is higher (because then marginal external cost is higher)

12 Peak vs. Off-Peak Congestion Pricing If traffic flow is cyclical, with peaks and troughs, optimal t will vary over time Here when demand is high, government charges t 1 per car When demand is low, govt charges t 0 Higher peak pricing reflects higher marginal external cost. $ Optimal Congestion Tolls MSC t 0 = MPC t 1 = D 1 D 0 Q 0,eff Q Q 0,eq 1,eff Q 1,eq Vehicles per lane per hr.

13 Congestion Pricing in Practice Using econometrics, transportation economists can estimate marginal cost and benefit curves (both social and private) Can infer optimal tolls from this analysis Technology assists in keeping administration costs down Toll booths slow things down, add their own social cost Chip in car can be read by machine Toronto uses tolls on 407 Express Toll Road 15 cents per km peak pricing 14 cents other times

14 Effects of Congestion Pricing Golden Ears Bridge (Langley to Maple Ridge) will use electronic detection/billing when completed. HOV lanes are a lower tech approach Used lots in California Carpool only lanes are less congested; essentially charges lower travel price to people who carpool Congestion pricing causes people to carpool more, use public transit, drive during off-peak times, pick alternative routes, drive less In the long run, it should cause people to live closer to their jobs.

15 Congestion Pricing and Urban Growth Any policy that increases social welfare in an urban area should increase the desire of people to live in the area If efficient congestion controls are imposed, utility in the city should rise, and there should be pressure for people to migrate in from other cities Ironically, congestion controls can exacerbate the original congestion problem! Though in the diagram on the next slide, you ll see that congestion pricing improves welfare.

16 Congestion Pricing and Urban Growth Consider 2 identical cities each with pop=4 million Both are initially at point i on lower utility curve One city imposes congestion pricing (cp)==>utility rises at each population Now people migrate from city without cp to city with cp. One city shrinks, city with cp grows, until utility is equal (n,c). u City w/ congestion tax j n c i 4 population

17 Other Ways to Reduce Congestion Gas taxes, parking taxes Gas tax Reduces driving and reduces pollution, but doesn t affect when/where people choose to drive; only indirectly addresses congestion problem Parking taxes (or eliminating free parking) Also discourages driving, but does not penalize distance driven; can only affect peak hour congestion if parking tax is different at different times of day When Ottawa increased parking price for govt. employees from 0% to 70% of market rate; caused 23% decline in # people who drove to work, increase in carpooling, increase in public transit use

18 Public Transit Subsidies One way to increase transit use is to raise the relative price of driving Congestion tax, gas tax, parking tax Flip side of this is to lower cost of public transit Transit use involves a positive externality Your taking bus has external benefits for drivers Just as we want to tax activities with negative externalities, we want to subsidize activities with positive externalities. People like their cars though, so we d essentially have to pay people to get them into buses (we d need more than a 100% subsidy).

19 Highway Pricing in Long Run Thus far the analysis we ve done has been short-run analysis We take the available road system as given, and figure out how to optimally use that system In the long run, though, the government can expand road capacity, build new highways How does the government figure out how much highway is the right amount?

20 Optimal Highway Width Optimal highway width occurs where MSB of trip = LRMSC of trip By the standard logic. To find the basic shape of LRMSC, helps to find shape of long run avg social cost curve LRASC is lower envelope of all the short run ATSC curves (one for each hwy volume) If LRASC is flat (constant returns to scale) then LRMSC=LRASC Long Run Average Social Cost of a Trip $ SRATSC L SRMSC SRMSC H L SRATSC H C* LRASC=LRMSC SRMPC L SRMPC H V L V H Vehicle Volume

21 Some Notes About Previous Slide Each road volume is fixed in short run; each volume has set of SR cost curves (avg and marginal) that corresponds to it. ATC curves always reach a minimum where the corresponding MC curve intersects. Applies in SR and LR Think of the marginal cost curve as pulling the average cost curve towards it. The assumption of constant returns to scale (CRTS) makes the trick of deriving the LRMSC curve easy. CRTS==>flat LRATSC curve Flat LRATSC curve==>lrmsc=lratsc (by above logic)

22 Choosing Optimal Highway Volume If road planning is optimal (the right road volume is chosen), SRMSC crosses SRATSC at min Need congestion tax to induce people to make soc. optimal # of trips Optimal toll is distance between SR MPC and SR MSC at V* (as before) Note: This causes govt. to break even on road! Optimal Volume SRMSC SRATC LRASC=LRMSC C* C SRMPC D=MPB=MSB V* Vehicle Volume

23 Congestion Tax Pays for Road Average road cost (per trip)=sratsc- SRMPC of trip Short run average cost of a trip equals private cost plus cost of the road Optimal congestion tax=srmsc of trip - SRMPC of trip So if SRATSC=SRMSC of trip (because we re at min of SRASTC curve in the LR), then average road cost equals the congestion tax So congestion tax exactly pays for road cost.

24 Rule for Highway Expansion If congestion tax revenues exceed average road cost, highway should be widened. For practice, draw picture of this. Start at LR optimum, then shift D curve up. Note new optimal congestion tax Note new average road cost Note new optimal road volume for long run Note that your textbook does this (if you get stuck). Can you draw the case where the highway is too big?

25 Congestion and Land Use In a monocentric model, congestion taxes will encourage people to live closer to the center of the city Assume no redistribution of tax revenues and no effect of tax on traffic volume (!) With these assumption, residential bid-rent will pivot down (commuting costs are higher except at center of metro area) If tax revenues are redistributed lump-sum to taxpayers, this increases bid-rent through income effect Reduced travel times also re-flatten bid rent to some extent

26 Effects of Congestion Tax on Land Use Congestion tax with redistribution of tax revenues raises bidrent, makes it steeper Higher commuting costs from tax steepens curve (offset to some extent by lower traffic volume) Redist. raises income People living near core city get more in redistributed income than they pay; their BR is higher than original People living further out, pay more in taxes Effect of Congestion Tax on Bid-Rents u* BR w/congestion tax Original BR Agric. BR

27 Effects of Congestion Tax on Land Use Congestion tax causes city to become more compact More people choose to live at core (core density rises) Fewer people choose to live in suburbs (suburban density falls) Density gradient becomes steeper

28 Pollution Congestion is not only externality associated with car use Pollution from cars has grown as problem Ironic, as cars were seen to be solution to horsepollution problem of early 20th century Major pollution issues Cars emit greenhouse gases; particulates; contribute to high ozone levels

29 Auto Pollution--Potential Solutions Again, there is a negative externality associated with auto use Can address it by providing incentives for people to internalize external costs Make people pay true cost of driving their cars Effluent fees (could charge people for their pollution) Could be charged at time of purchase of car (but this doesn t penalize the marginal mile driven), or per mile driven (if sensors are installed in car this is better) Gas tax (reduces incentive to drive, but doesn t necessarily get incentives right with respect to emissions Cars with high emissions per gallon pay same tax as cars with low emissions per gallon; doesn t directly encourage low emissions Transit subsidies

30 Auto Safety Yet another externality associated with car use is damage and injury from accidents I take safety into account when I drive, but only insofar as it benefits me; I don t take into account benefit to others Safe driving involves positive externality (or unsafe driving involves negative externality) Car insurance compounds this problem, because it makes someone else pay for my accidents (moral hazard) Safety improvements in cars make me safer, but also increase the incentives for me to drive less safely (e.g. You d rather be on the road with people driving Yugos than people driving Volvos)

31 Effect of Auto Safety Regulations If your car becomes safer, the MC of speeding falls for you Note that private MC falls, but marginal external cost of speeding may rise Perhaps you endanger more pedestrians now If all cars are subject to regulation, then marginal external cost to other drivers probably falls Safety Regulations Lower Cost of Speed $ MC MC MB Speed

32 Auto Safety Rise of SUVs illustrates this point SUV drivers tend to feel invincible; so tend to drive worse than people driving little cars As more people drive SUVs, people in little cars (and pedestrians) feel less safe; are more likely to shift to driving SUVs In equilibrium, everyone ends up driving bigger cars, but it s not clear that anyone is any safer Kind of like when everyone stands up at a hockey game no one actually gets a better view; arguably everyone is worse off because they could have the same view sitting comfortably Everyone ends up paying more for a big car; yet it s possible that no one ends up safer in equilibrium

33 Evidence on Auto Safety Regulations Death rates for pedestrians and cyclists rise following increased auto safety regulations (seatbelt laws, shatterproof glass, etc.) Collision rates also rise because people drive less safely; death rates for drivers fall, thanks to safer cars What would make people drive more safely? Remove driver seatbelt from cars; install a large metal spike protruding from steering wheel and pointed at driver s chest That would slow people down ;)