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6 thoughts on “Congestion taxes can make society worse off

  1. bbqr0ast

    I would argue that the activities supported by the congestion charge (ie those where the user is willing to pay a toll) are those that are most economically useful to society (eg deliveries, car pools, etc).

    So yes, there may be exceptions where congestion charges neuter economically useful activity, but overall it should increase the economic benefit of roads (by biasing their use towards high-benefit activities).

    1. Adam

      You’re right. A congestion tax should eliminate the activities whose value does not exceed the cost plus the cost imposed on society via congestion.

      The more difficult question is how high the tax should be such that it discourages the appropriate amount of activity while allowing the activities where the benefits are greater than the costs to continue. A tax that is too high will discourage economically useful activities that would take place under a lower, appropriate tax while a tax that is too low will allow economically inefficient activities to continue.

      Some think that simply imposing a tax on a negative externality (or subsidizing a positive one) will fix the issue. But a tax that is too high can be worse than no tax at all, while a tax that is too low will not completely solve the problem. As always the devil is in the details.

      Thanks for reading and I appreciate the comment.

  2. Todd_Litman

    This paper assumes a totally automobile-dependent transport system in which travellers’ only response is to move to unpriced areas. In most cities, peak-period travellers can respond to efficient road and parking pricing by shifting modes.

    This research therefore emphasizes the importance of providing good alternatives (walking, cycling, public transit, ridesharing, telework, flextime and delivery services) in conjunction with road pricing, in order to minimize the cost to travellers for reducing their automobile trips. This reduces the price (road toll) that is needed to achieve a given reduction in peak-period vehicle trips, and so benefits both the travellers tolled off and those who continue to drive. This is one of the justifications for using road pricing revenues to improve alternative modes.

    For more information see:
    “Congestion Relief: Assessing the Case for Road Tolls in Canada” (https://www.cdhowe.org/pdf/commentary_248.pdf )

    “Smart Congestion Relief” (http://www.vtpi.org/cong_relief.pdf ).

    1. Shane Phillips

      This was exactly my thinking. I was like, is he actually trying to make the case that people will just stop traveling to dense areas as a result of a congestion tax? Isn’t that contrary to the experience of cities that actually have them already?

      The one circumstance this seems legitimate is if you have no alternatives to driving to an area with a congestion charge, which is basically never the case where such a charge is likely to be proposed. The whole principle of a congestion charge is to convince people to find alternative means of getting where they’re headed without such high social costs.

      1. Todd_Litman

        Thanks Shane!

        Yes, as discussed in my report “Evaluating Public Transit Benefits and Costs” (http://www.vtpi.org/tranben.pdf ), congestion pricing effectiveness tend to increase with transit service quality. One major study found the elasticity of Seattle-area home-to-work vehicle trips to be approximately -0.04 (a 10% price increase causes automobile commute trips to decline 0.4%), but increased four-fold to -0.16 (a 10% price increase causes automobile commute trips to decline 1.6%) for workers with the 10% best transit service (PSRC 2008). Another study found that, given financial incentives to reduce driving, households in denser transit-accessible neighborhoods reduced their peak-hour and overall travel significantly more than comparable households in automobile dependent suburbs, and that congestion pricing increase the value of more accessible and multi-modal locations (Guo, et al. 2011). These indicate that high quality public transit service significantly reduces the price (road toll or parking fee) required to achieve congestion reductions, a reflection the smaller incremental cost to travelers (less consumer surplus loss) when they shift from driving to high quality public transit, and a direct financially benefit to motorists on roadways with congestion pricing.

        Empirical evidence supports this conclusion: compact, multi-modal cities such as New York and Chicago have more intense traffic congestion (vehicle traffic experiences greater percent delays during peak periods) than sprawled cities such as Atlanta and Houston, but per capita congestion costs are lower because residents drive less during peak periods (http://www.vtpi.org/cong_relief.pdf ).

        Because it ignores these issues, this study seems virtually useless.

        1. Adam

          You both make some good points. Non-car alternatives can provide ways for people to get to an area that reduces car traffic, all else equal. But ultimately even non-car alternatives become congested-only so many bikes can fit on a street and so many people can fit on a subway, train, etc.

          Congestion taxes paired with other modes of transportation can increase the optimal amount of density, but not to infinity. I think the big takeaway from the paper is that when choosing the optimal amount of density/traffic via the implementation of a congestion tax, it is important to account for the positive spillovers of density as well. In other words, the efficient amount of density may not correspond to a congestion-free movement of people. As congestion decreases, it may be efficient to increase density to the point where congestion reemerges, etc.

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