Chapter 11 Autos and Highways

1
Chapter 11 Autos and Highways

• Urban Transportation

2
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

3
Modal Choice of Transportation
4
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

5
Table 11-1 OSullivan
6
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.

7
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

8
Efficient Congestion Cast

• Taxes may vary between peak and off-peak travel

9
Responses to Congestion Taxes

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

10
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

11
What happens if we increase capacity?

Private Cost Narrow Highway
Private Cost Wide Highway
Demand
Vo
Vw
Traffic Volume
12
Subsidies for Transit

• a) Free Market (B,R) b) Subsidy Transit (S,C)
• d) Congestion Tax (A,Q)

Social Trip Cost

Private Trip Cost
Q
R
A
Marginal Social Cost
B
Private Cost under Subsidy
D
C
S
D Sub
D Tax
D
A
T
13
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

14
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

15
Who pays for the expanded capacity?
16
Average Total Cost Curves

• Define ATCARCPTC
• There will be an ATC for each size of freeway
• U-Shaped because of 2 effects
• Cost Effect
• Congestion Effect

17
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

18
Optimum Volume and Road Width

• MCMB
• Congestion Tax encourages the drivers to drive a
  volume of V
• Recall
• ARCATC-PTC
• Congestion TaxSTC-PTC

19
Congestion Tax covers the price of the road!

• Congestion TaxAverage 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 revenuegtARC

20
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

21
Congestion Tax and the Monocentric City?

Ro
R1
u
22
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?

23
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

24
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 Speed

25
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