Chapter 10 Externalities from Autos

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Chapter 10 Externalities from Autos
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How do we get to work?
The majority of commutes are made in a car/truck
with a single driver. Public transit is only
slightly more popular than walking or working
from home. Rising fuel prices has probably had
an impact on this, but Before the current
increases in fuel prices, it was estimated that
3.00 per gallon would substantially reduce
traffic congestion on most major
freewaysAccurate or not???
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Length, Time, Speed
Since 1983 Commute times have risen. Commute
distances have risen. Average speeds have risen,
but have started to decreasewhy?!
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Georgia Ranks Highin Travel Time to Work
Commute time rankings
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Extremely Loooong Commutes
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Social Costs are often not Factored in Commute
Decisions
Equilibrium is not always optimal when there are
external costs. On an open freeway, the marginal
cost of an additional auto is low. But, as the
freeway becomes more congested, adding one more
car affects congestion for everyone (lost
time)the MC goes up more quickly. Thus, enters
the commute taxthe difference between social and
private commute costs per trip.
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Relating the Graph to a Table

• Private costs are rising from the initial cost
  without congestion to the cost with the
  additional time with congestion
• External costs are the costs each driver incurs
  because of the congestionit starts at 0, because
  on an open highway, you drive at the speed limit
  (HA!)
• Social Trip Cost MB (or demand) Thus, at a tax
  of 2.10, we are at a social optimal.

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Congestion Tax

• The Congestion Tax is used to place the external
  costs onto those people who generate them.
• By using a tax, fewer people choose to make the
  trip
• Speeds increase and less time is lost
• Revenue can be used to lower other taxes
• Only users pay the tax. Folks that dont use it,
  still get an the (other) tax cut.

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Utility from a Congestion Tax
Remember, CONGESTION creates social costs or
disutility. Assume two cities with congestion
underpriced in both, with an initial eq at
i. Suppose a city implements a cong. tax and cuts
anther local taxUtility shifts up for that city,
because the costs of congestion is borne by those
that congestreducing the disutility from
congestiontaxes are lower for those that dont
congest. Utility will increase for both cities,
but population grows in the C-tax city at the
expense of the other city.
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Things arent always simple
Congestion taxes that address ACTUAL external
costs arent fixed amounts. They depend on
traffic patterns. You would probably not impose a
congestion tax at 200 am. In fact, to be
efficienthow should you set the tax?
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Implementation!!!

• Time-based tolls
• V.I.S. Transponder that works with roads
• HOT (High Occ. Toll)/HOV (High Occ. Veh.)lanes
• GIS GPS (privacy?!)

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Congestion Tax Alternatives need to affect the
following

• Travel Modes Tax meant to encourage modal
  substitution (e.g., Single-occupant tax)
• Time of Travel Flexible work hours or schedules
• Travel Route Route substitution
• Location Choices Residential location vs job
  location choices (ME!)

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What about the fuel tax?

• Does a fuel tax reduce peak congestion?
• Cost per mile increases for drivers
• Decreases relative costs of alternative modes
• But commute prices at peak times dont change
• Total driving/commuting declines, but commute
  times and locations stay the same
• Fuel taxes leads to very little changes in peak
  congestion.
• Fuel taxes reduce fuel consumed (this addresses
  other external costsenvironmental)

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Transit Subsidies

• Increases the relative costs of auto commutes
• Helps match the underpricing of roads
• Reduces congestion by change modes of
  transportation
• Problems
• People arent responsive to price changes
• Free fares would increase transit ridership by
  only 1/3rd.

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No Parking Subsidies!!!

• Parking subsidies reduce the cost of using a car
  for transport
• Employers proving FREE parking substantially
  reduces costsalthough this typically reduces
  wagesif so, you would be giving up wages by not
  parking!!!
• Universities, governments, businesses all do
  this!!!
• Whats the answer to the traffic/parking problem
  on UWG campus?

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When to Expand Capacity?!
ATC the average total cost of travel, which
includes both the cost of building the road and
the private cost of travel. The congestion tax is
set as the difference between the Private cost
and the social cost per trip. With 2 lanes, this
is the difference between i and k. If the tax
revenue per vehicle exceeds the average road cost
(the difference between ATC and the private trip
cost), we should expand the road capacitymore
lanes.
Congestion Tax
Ave. road cost
TaxAve. road cost
This makes fiscal sensethe excess revenue from
the tax signals the gov. to build more road
capacity. Widen until the cong. Taxaverage road
cost.
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Who pays for Roads?

• Economists like the congestion tax because those
  that cause the problem, pay and by doing so, help
  alleviate the problem.
• Few areas use congestion taxesmost use fuel
  taxes or other user-based fees
• licensing
• tags
• weight-based fees or taxes

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Pollution (in addition to congestion)

• Congestion represents only ONE external harm
  thats cause by auto traffic.
• The attraction of the motor fuel tax is that it
  can address two problems at oncesorta.
• Overall travel is reduced (but not peak-time)
• Fuel consumption is taxed so pollution is reduced
  (but, it doesnt encourage people to drive
  cleaner cars)

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What the reason for the Gas Tax?
A fuel tax simply increases the effective price
of fuel to the driver. This reduces the quantity
demanded of gasoline. If there is no change in
fuel efficiency, this means less pollution and
fewer trips. Fuel taxes in GA are ear-marked
for auto-based transportation. This means, we
dont use revenues from the fuel tax to fund
transportation alternatives. How could we
directly attack the pollution created by
cars??? Carbon emissions tax
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Fuel Taxes (a primer)

• GA 7.5 cents per gallon motor fuel tax on
  gasoline
• GA 31 tax on the retail price (as surveyed
  by the state every 6 months)
• (Jan 1, 2008) 3 Prepaid State Tax Rate
  4 Prepaid State Tax Rate
• Motor Fuel Type (State, County
  Municipalities Only) (All Other Motor
  Fuel Sales)
• 1. Gasoline 0.083 Per/Gal. 0.110
  Per/Gal.
• 2. Diesel (Clear/Dyed) 0.092 Per/Gal.
  0.123 Per/Gal.
• 3. Aviation Gasoline (1) 0.129
  Per/Gal. 0.173 Per/Gal.
• 4. L.P.G. 0.056 Per/Gal. 0.074
  Per/Gal.
• 5. Special Fuel (includes CNG) 0.082
  Per/Gal. 0.109 Per/Gal.
• U.S. 18.5 cents per gallon
• For GA current tax on a gallon is 18.5117.5
  37 cents per gallon or about 10.7.
• We have if not the lowest, among the lowest rates
  in the US.
• ALL STATES

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