Congestion Pricing?

Eric A. Morris, a researcher at U.C.L.A.’s Institute of Transportation Studies and a regular contributor to the Freakonomics blog points out the results of a new study on the effect of Congestion Pricing in London.

Since most of the current members of the 108Warren Commission live in the fine state of New Jersey, arguably home to more congestion per mile of paved roads than any other state, there is a great deal of interest in any economic solution to the scourge that is traffic congestion.

Now as Mr. Morris points out, the study (which found that the benefits DID outweigh the cost) was conducted by the entity that manages the congestion pricing scheme in London, so this information should be viewed with some skepticism. Yet in the overall analysis, the numbers do seem to support the use of a congestion pricing system to reduce traffic (and generate revenue).

Folks that live anywhere near New York City will recall that Mayor Bloomberg tried to implement a similar system in NYC and was soundly defeated. Philadelphia has never even considered it, and not surprisingly, people in London are wildly NOT in favor of the system either -- so, even though it appears to achieve the goals set out for it, it may not be long for this world. The current Mayor of London is already talking about making the area where it is charged smaller.

The Commission is not surprised. The positive impact is measured at the Macro level, while the cost is felt on a Micro level. In other words, people don't notice a 2% reduction in their travel time, even thought it does add up to considerable savings overall, but they certainly notice a £8 charge in their own wallets.

The challenge is that traffic congestion is what Economists call a negative Externality -- a cost that is imposed on others, rather than the individual who makes his choice. Managing externalities like this is one of the functions that some people feel should be the role of the Government. Congestion Prices are essentially a Pigovian Tax to try and discourage those additional drivers at the margins whose presence on the roads leads to extreme traffic.

The Commission is torn when it comes to Pigovian Taxes. In general we agree that they can be effective in reducing behavior that produces negative externalities. The issue is in determining which "Public Good" should be addressed. There are days when the Commission would sell their souls to remove congestion at the Turnpike Merge @ Exit 8...