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Chapter 10 Externalities from Autos

Chapter 10 Externalities from Autos. Introduction. Axiom 3: Externalities cause inefficiency Solution: Internalize the externalities with pricing (taxes) Automobile externalities: congestion, environmental damage, collisions. Congestion. Nationwide cost of congestion

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Chapter 10 Externalities from Autos

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  1. Chapter 10Externalities from Autos

  2. Introduction • Axiom 3: Externalities cause inefficiency • Solution: Internalize the externalities with pricing (taxes) • Automobile externalities: congestion, environmental damage, collisions

  3. Congestion • Nationwide cost of congestion • Typical commuter spent 47 hours per year in traffic • Extra gasoline and diesel fuel = $5 billion • Sum of time and fuel cost = $63 billion (5 times amount in 1982) • Modeling congestion • Commute distance = 10 miles • Monetary Cost = $0.20 per mile • Time cost = opportunity cost of $0.10 per mile

  4. Column B: Trip time increases with volume as drivers slow for safe distances • Column C: Private trip cost = $2 monetary cost + $0.10 per minute • trip time • Column D: Increase in time per vehicle • Column E: Increase in total travel time = D • vehicles • Column F: External trip cost = E • $0.10 • Column G: Social trip cost = C + F

  5. Benefits and Costs of the Congestion Tax • Benefits: Decrease in trip time from reduced volume; Reduction of other taxes • Cost: Tax for drivers; Lost consumer surplus for former drivers

  6. Congestion Taxes and Urban Growth • Will the imposition of a congestion tax cause the city to grow or shrink? • Congestion tax improves efficiency of urban economy • Consider two-city region with fixed population

  7. Practicalities of Congestion Taxes • Estimates of Congestion Taxes • San Francisco: $0.03 to $0.05 (off peak); $0.17 to $0.65 (peak) • Minneapolis: average of $0.09; up to $0.21 on most congested routes • Los Angeles: $0.15 average for peak • Implementing the Congestion Tax • Vehicle identification system (VIS) allows tracking and billing • Singapore: $2 for central zone; Electronic pricing for variable charges • Toronto: Fees on Express Toll Road depend on time of day

  8. A Congestion Tax Reduces Traffic Volume by • 1. Modal substitution: switch to carpool, transit • 2. Time of travel: switch to off-peak travel • 3. Travel route: switch to less congested route • 4. Location choices: change residence or workplace, cutting travel distance

  9. HOV and HOT Lanes • HOV: high-occupancy vehicle lane for carpools and buses • HOT: high occupancy or toll; pay to use HOV lanes • California HOT lanes: Toll varies with traffic volume • Responses • Modal substitution: switch to transit, carpool • Time of travel: Switch to off-peak travel • Change routes • Combine trips

  10. Alternative to a Congestion Tax: Gasoline Tax • Encourages modal substitution (1) and location choices (4) • Does not affect time of travel (2) or route (3) • Gasoline tax applies to driving on uncongested road

  11. Alternative to Congestion Tax: Transit Subsidy • Idea is to match underpricing of car travel with underpricing of mass transit • Encourages modal substitution (1) • Does not affect time of travel (2), route (3), location choice (4) • Problems • Inelastic demand for mass transit; zero price increases ridership by 1/3 • Only a fraction of new riders are diverted auto drivers

  12. Alternative to a Congestion Tax: Eliminate Parking Subsidy • Subsidies cut drive-alone cost and increase number of cars by 19% (Shoup) • Eliminate subsidies shifts auto demand to left, decreasing volume • Evidence of responsiveness • Ottawa pricing decreased drivers by 23% • LA pricing decreased solo drivers by 44%

  13. Road Capacity Decision • How wide a road to build? • Widen if Congestion Tax Revenue > Road Cost

  14. Step 1: Two-Lane Road

  15. Step 2: Four-Lane Road

  16. Capacity Expansion and Latent Demand • Wider road has lower time cost and larger quantity demanded • Figure 10-6: Double width decreases trip cost from $3.60 (k) to $3.00 (f) • When capacity doubles, why not go from point k to point m? • Law of demand: Increase in volume partly offsets cost savings from wider road

  17. Who Pays for Roads? • Use fees for autos and trucks: gas, oil, auto parts • Revenue from fees no longer cover cost of roads and highways • Urban road users come closer to covering costs

  18. Autos and Air Pollution • Pollution and Greenhouse Gases • Pollutants: VOC, CO, NOx, SO2 generate smog and particulates • Transport responsible for 2/3 of CO, 1/2 of VOC, 2/5 of NOx • Poor air quality exacerbates respiratory problems & causes premature death • Greenhouse gases from automobiles • Internalizing pollution externalities • Economic approach: Tax = marginal external cost • Monitoring device allows direct charge for emissions • One-time pollution tax depends on expected emissions, but not mileage

  19. Greenhouse Gases and a Carbon Tax • Carbon tax: External cost per ton of carbon = $25 to $100 • Carbon tax of $50 means gasoline tax = $0.13 per gallon • Extend Figure 10-7: Shift supply curve upward by $0.13

  20. Motor Vehicle Accidents • Cost of MV Accidents • Annual cost in US: 3.1 million injuries, 40,000 deaths, $300 billion • External cost of collisions = 4.4 cents per mile (vs. 10 cents per mile for fuel) • Accidents and Congestion • Parry: $5 billion per year lost from accident delays • Quick response policies: cruising tow trucks, loop detectors, helicopters

  21. Vehicle Safety Policies: Bikers Beware • Vehicle Safety Act of 1966: Mandated safety features • Seat-belt and other safety laws didn’t have expected effect • Small reduction in death rates • Higher collision rates • Increased injury and death rates for pedestrians and bicyclists

  22. Accident Costs and VMT Tax • Impose per-mile tax = Marginal external cost from accidents • Figure 9-5: Efficiency Gains from VMT Tax • Perfectly Differentiated: Gain = 0.38 cents per mile driven = $9.4 billion per yea

  23. Automobiles and Poverty • Recall spatial mismatch discussion from neighborhood chapter • Access to a car • Urban low-income families: 27% don’t own a car • Blacks in central cities: 45% don’t have access to a car • Importance of a car • Switch from mass transit saves 19 minutes each day and expands search area • Car owners are more likely to complete job training program and get a job

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