Vehicle Leases – An alternative vector for road pricing

The ownership model under Mobility-as-a-Service has often presented the dichotomy of an owned autonomous vehicle, the way Americans most typically use cars, vs. a shared autonomous vehicle (autonomous vehicles that come to you like a taxi). But many automakers are now trying to move customers to the leasing model of vehicles, which gives owners a long-term stake in an individual car, but not full ownership rights. The reasons a customer may prefer a lease is that technology is rapidly changing, and who wants to get stuck with an out-of-date vehicle. Alternatively, they may anticipate their tastes or needs change, and don’t want the hassle of resale. Automakers have often leased things like Electric Vehicles which require a major overhaul at some point in time, and this also gets them a built-in service business, as the incentive for a lessee  would otherwise be to not service the vehicle and run-down capital stock, while the lessor wants to maintain capital so they can re-lease (or sell) the vehicle subsequently after the expiration of the lease.

Moving automobile ownership to the lease model, particularly with EVs, provides another advantage, this one for the road administrators. It reduces the number of players who own cars and makes a new model of road service provider possible.

Suppose, instead of purchasing road services from the government, (now via gas tax, later via mileage based user fees), travelers would purchase transportation services (the right to travel at a location at a time for a price) from independent road service providers. Road service providers (RSP) would purchase capacity from the infrastructure owner (presumably the government [or a government-like non-profit road utility]). If an RSP’s customers over-consumed the road, the RSP would pay a penalty. RSP would charge its customers accordingly to maximize profits in this new competitive market.
What does this allow?

(1) It allows competing RSPs to offer a variety of bundled services to customers (a per use charge, a charge for a the right to travel 10 times per month, or unlimited service, or service bundled with cell phones, or insurance or other services e.g), but to each have different bundles. RSPs are likely to be better at product differentiation and price discrimination than governments with omnipresent political and equity concerns.

(2) It allows the government to stay out of the data ownership business, it would be responsible only for identifying which RSP a traveler subscribed to, and thus would eliminate “the government is tracking me” problem with road pricing. (We still have big brother business is tracking me, but if you have a cell-phone or credit card, that game is already lost)

(3) It provides new markets for private industry. This could be an app as part of a cell-phone or GPS or in-vehicle service (e.g. OnStar) or insurance (AAA, Progressive). The only technology standard that would need to be established by the government is a simple (e.g. RFID) sticker adjacent to the license plate verifying the RSP and the government with inexpensive RFID readers to count the number of cars on each link by time of day with the RSP. The private firms would be responsible for monitoring their own customers.

(4) It provides a more stable revenue stream from government, which is getting revenue directly from RSPs who bid on road space. In congested areas, road space would go for a higher price, in uncongested areas, RSPs would negotiate a per-use charge with governments.

Part of the lease can include terms about when and where you can use the road. Just as lease terms today allow X miles per year, new terms could be Y peak hour miles, and Z off-peak miles. The automaker/vehicle owner would then compensate the road owners for use of the roads by the cars they lease-out, while setting rates and incentives for vehicle users/leaseholders to manage their demand. Private firms would be able to explore demand space and develop interesting combinations of services (the price for traveling on certain facilities at certain times) in a way that the public sector just cannot do for issues of both capability and fairness.

21 Strategies to Solve Congestion

So your city has traffic congestion. Welcome to the club. Congestion not only wastes time, it increases pollution and crashes.  While this undoubtedly annoys you as a traveler, it could be worse; your city might not have congestion because no one wants to be there. Still, it would be great to have a thriving city without congestion. People could reach more destinations in less travel time, and thus have more time to spend doing the things they wanted. If you figure it out, let us know.

Congestion, due in part to weather, on I-94.
Congestion, due in part to weather, on I-94.

Political double-speak today “addresses congestion” rather than “solves congestion” (almost twice as often according to Google). This is probably because policy-makers want to sound like they are doing something without promising anything. But I don’t think talking to congestion accomplishes much.

There are a number of proffered solutions out there. Congestion is, in principle, a mostly solvable problem, even if no fast-growing city has fully solved it. This article outlines 21 ways that congestion could be solved. Some of these are dumb, many are good, one is great.

 

  1. Capacity – Perhaps the most obvious, ‘common sense’, solution when demand (traffic) is in excess of supply is to expand capacity.  This is what we do with most things if we can. If our house is too small, we make it bigger. If the internet is too slow, we add capacity. In roads, this usually means adding lanes to existing roads. The first problem with this solution is that it is expensive. Buildings are built close to (or on) the proposed expanded right-of-way, so taking them in addition to being costly brings in an additional socio-political dynamic — people don’t like to be moved. Further, if you expand capacity, demand will respond. Travelers will switch routes, time-of-day, mode, and destination to take advantage of the new faster travel times, which means these wider roads won’t be nearly as much faster as hoped for. New (induced) developments will be built, and much of the capacity will quickly be used up by new travelers. There will still likely be a small amount of travel time saved for existing travelers, and the new travelers do gain benefits (otherwise why would they make the trip), so it is not necessarily a bad thing, but it may not solve your congestion problem.
  2. Connectivity – Often the problem is not width of the road, but where it goes. A new road that goes directly to the right place can replace a longer route that doesn’t. So reducing the circuity (indirectness) of the network through selected connections can reduce congestion and total traffic by taking traffic off of longer routes. Even when there is nominal connectivity, it might not be very good. A bridge can replace much slower and lower capacity ferries, eliminating a bottleneck. But as with capacity expansions above, it can be very expensive. In a mature network, all the cheap and useful roads have been built already. A new connection may be cheap, or it may be useful, but it won’t be both. The induced demand outcome also applies.
  3. Closure – Perhaps counter-intuitively, if we shut down key links on the network, we could also reduce congestion. If people can’t get across a River, they won’t drive from Home to the River either, reducing traffic along that path. Just as there is induced demand when capacity is added, there is reduced demand when it is taken away.  In selected cases there is something called Braess’ Paradox, which says that some links result in an increase in overall travel time when they are added (and so reduce overall travel time when they are closed) because individual selfish routing choices can lead to bad outcomes.
  4. Controls – The next most obvious solution is to use the infrastructure we have better. When we have a stop-sign controlled intersection, and there are long queues, we add traffic lights, which manage traffic better because there is less time lost in starting and stopping. Coordinating traffic lights on a city street grid can make sure more vehicles hit green lights. The use of controls on freeways includes devices like ramp meters, the traffic lights at freeway on-ramps, that manage the input flow to keep the freeway flowing (more) freely (than it otherwise would). Traffic engineers have suites of controls that try to squeeze in a few more cars on the same set of pavement by reducing the size of gaps between vehicles. These can help, and may be worthwhile. However, this is on the order of a 10% reduction, rather than the 100% we would like to see. And these gains are potentially absorbed by both general traffic growth where that occurs, and induced demand in a mature system.
  5. Crashes – It is sometimes estimated that half of all delay is due to non-recurring congestion, most notably crashes. First, we want people not to crash. Crashes can be reduced by better designed roads. Crashes can also be reduced with better-trained drivers. Making licensure more difficult so the drivers are better is one strategy. Making driving more expensive so fewer people (and especially fewer marginal drivers) are driving is also significant. More importantly, crashes can be reduced by better-designed drivers. Over the longer term, we need to replace the human with the machine.  Second, we want crashes to be cleared quickly. Quick emergency response helps save injured travelers. Freeway service patrols (under various names), help clear crashes and reduce the amount of subsequent delay.
  6. Construction – Maintaining roads is important, without proper maintenance they would eventually cease to be. But closing entire roads for construction can’t be the right strategy, can it? Well, it depends. The alternative, trying to do construction one lane at a time will take much longer. So for a 4 lane road, closing one lane at a time for 6 months each will take 2 years, but closing all 4 lanes, and requiring travelers to detour might take less than six months as it is more efficient. Doing all work at night or weekends is another strategy. The cost of the delays vs. the cost of construction need to be properly weighed.
  7. Competing modes – Just as widening a road is in theory a solution to a congestion problem, building a competing mode is also a theoretical solution. By building a rapid transit line or running an express bus, or even building sidewalks and bike lanes, other people may switch off the road, leaving the roads faster for the rest of us. The traditional induced demand argument follows. The evidence on this is weak though, most transit construction serves transit riders (which is a good thing) and doesn’t reduce congestion much.
  8. GaugeTrack gauge, the width of railroad tracks, determines the width of the trains. As with railroads, the gauge of roads has been largely determined, with freeway lanes being 12 feet wide, and cars, buses, and trucks are narrower so that they fit.  Lanes on surface streets vary a bit more, but tend to be similarly sized in newer developments.  Most cars carry one person most of the time, but are sized for at least 4, 2 in parallel, and 2 rows. If cars were half as wide, we could fit twice as many in the same space. This is what we do with motorcycles and bicycles. Pedestrians can even fit more. Before the motorcar,  long distance travel by horse was one man / one horse usually, and the occasional horse and carriage for multi-person trips or cargo. Now the carriage is brought along whether it is needed or not, wasting space and delaying others.  Redefining the gauge of road lanes, so that lanes at least are split for narrower cars could double capacity.
  9. Storage – On surface streets, we waste pavement storing parked cars. A lane or turn-lane or half-lane or bike-lane or bus-lane can often be added in the space devoted to unmoving metal, increasing throughput. Adjacent property owners are often under the mistaken impression they or their customers have a right to park (for free!) on the public street in front of their house. When there is no congestion, this is not a problem. Where there is congestion, this artificial right is costly to society.
  10. Information – People are terribly inefficient routers, choosing routes that are not only not the shortest for society (which is to be expected) but not the shortest for themselves either. Using real-time traveler information rather than their own intuition and incomplete mental maps, drivers can find the shortest path to their destination, reducing their trip length and travel time, and reducing congestion for others.
  11. Autonomy– While humans can barely safely drive with a two-second following distance between vehicles, autonomous vehicles with advanced sensors, in an environment where most or all the cars are autonomous, are expected to follow at less than one-second. That doubles capacity right there. They also don’t require nearly as wide a lane as human drivers do, which could almost double capacity again (this is the same gain we would see with narrow cars). How well this work on city streets, as opposed to freeways, remains to be seen, but up to a four-fold increase in freeway vehicle capacity just from autonomous vehicles is well-within the realm of possibility, and while it will induce demand, should buy significant congestion reduction gains. Even non-freeways will benefit as more travelers switch to the less congested freeways.

    The first set of strategies are basically supply side. But congestion is caused by a mismatch of supply and demand. So let’s turn to demand.


  12. Locating – If only other people lived near where they worked (shopped, studied), they wouldn’t have to travel as far, and so would be on the roads less (assuming they still traveled by car) or not at all (if they walked). While at some level, people coordinate location of origin and destination (they are usually in the same metropolitan area), they could certainly do so better. From a public policy perspective, moving more jobs out to where people live, and more people to where the jobs are, increasing the local balance between jobs and housing can reduce travel. In practice this is difficult, as there is no mechanism to require people to take local jobs or firms to employ local residents. The best municipalities can do is ensure the zoning permits developers to build appropriate developments. Still, ensuring the opportunities are there is one thing (and at best you can ensure developers are permitted to develop these opportunities), ensuring people partake of those opportunities is another. The cost of this also needs to be considered. There are reasons many firms like to locate near other firms rather than workers, which has to do with economies of agglomeration and the efficiencies that can be had from close inter-firm coordination.
  13. Telecommuting – At the extreme of mutually co-locating home with respect to work is working at home. This involves no commuting travel outside the home, though may induce some additional non-work travel outside the peak. This has been growing slowly over the past decades, and is amenable for many, but by no means most, jobs. Like location, this is largely an individual decision. Better broadband would help, and encouraging employers to allow or require employees to work from home would not reduce this trend, but it is hard to see outside of money or regulation in some form what persuades firms to behave differently with regards to incentives for where employees work. Still, the more people that tele-commute (tele-shop, etc.) the fewer that are traveling, all else equal, which it never is.
  14. Scheduling – We also wouldn’t have congestion if not so many people wanted to travel at the same time. We could stagger work hours, so not everyone arrived at work at the same time. Some large firms already do this, but it could be expanded. The downside is that the whole point of everyone going to work at the same time is that they be there together (or at the same time as customers and vendors) so that can collaborate. The point of going to work is only in part the ability to use expensive machinery in isolation. It is also about the gains from cooperation of people being at the same place at the same time. If people didn’t need to do that, and were (almost) as efficient as working from home, then there would be little point in traveling at all.
  15. Sequencing – We do not begin and end all trips at home, we chain our trips together to reduce the total amount of travel. We go from work to the store to another store to home. This not only saves us time, it reduces congestion. Do this more systematically, with a little more planning, and you can reduce more congestion.
  16. Shipping – Just as chaining trips may be efficient for you, chaining trips may be good for your goods. Instead of you and your neighbor each making a trip to the store and back (A -> Store -> A, B -> Store -> B). The store can send out a truck (or robot, or drone) and drop off goods at you and your neighbor’s houses before returning (Store – A – B – Store), which should reduce the total mileage on the network (though the trucks will need to load and unload frequently).
  17. Sharing – Carpooling has been around since the dawn of cars, and sharing the back of a horse, camel, or llama before that. It is easiest when there are two people going from the same place to the same place (like members of the same family going from home to work) at the same time. All this sameness though requires coordination to arrange, or sophisticated matching to discover. While people may carpool with non-co-resident coworkers in their youth, one party (whoever is the most efficient or earliest riser) will tend to find the cost of waiting for the ride (or worse, waiting for the passenger) to be too costly, and eventually everyone gets their own set of wheels if they can afford it. HOV lanes or restrictions in some cities encourage people to pickup strangers (sluggers or jockeys) to fill up the extra seats to save time. Overall this is a small phenomenon. But imagine you could get paid for picking someone up along the way and dropping them off — ridehailing services like LyftLine and UberPool are moving in this direction — you might be more inclined. Information technology is enabling everyone to be a taxi-driver. Whether they want to be is another question.
  18. Sharing with Scale – Suppose instead of picking up one person, you picked up two, or four, or eight, or sixteen, or thirty-two. You became a jitney or vanpool or even a bus-driver. And if you pick up a lot of people, maybe that is more remunerative than the job you have, so you become a professional. And if you picked up thirty-two people along the way, you would want to be careful about the route so you don’t delay the passengers on board (your paying customers) too much. You have discovered the continuity between driving alone and public transit. And if someone else is driving a nice vehicle on a convenient route, maybe you forego the car and ride instead. You have helped reduce congestion. And if one vehicle is carrying thirty-two people who otherwise would have driven, we have removed thirty-one vehicles from the road. And if everyone were in a vehicle carrying thirty-two people, we can reduce congestion almost 97%. But for all the reasons identified above, this magnitude is unlikely. [The difference between this and competing modes above is that this sharing with scale emerged organically, while the other is a top-down investment in fixed route transit lines — process matters.]
  19. Walking or Biking – Maybe you still like your independence and don’t want to comport to someone else’s schedule, you just don’t want to be in a car. If more people walked instead of driving, the sidewalk utilization rate would increase, while the road utilization rate would decrease. Bikes similarly would congest bike lanes and bike paths, but that’s not as much of a concern, and bikes in mixed traffic can sneak through without congesting cars that much. Walking and biking are both up over the past decade. The best opportunities for substitution are for short distances, which are a large share of trips though a much smaller share of miles.
  20. Rationing – If your license plate ends in an odd number, you can travel Tuesday, Thursday, Saturday, and Sunday. If it ends in an even number you can travel Monday, Wednesday, Friday, and Sunday.  Therefore each weekday will have half as many travelers, right? Alternatively, license plates ending in 1 or 2 can’t drive on Monday, 3 or 4 can’t drive on Tuesday, and so on. Therefore each weekday will have 20% fewer cars. This strategy has been tried in a number of cities, and has been used in the US to ration gasoline during the oil crises of the 1970s.  In practice, people with money (which is to say, most people with cars) get a second car to travel when they want. People swap cars, or license plates. People get around these regulations, which are a terribly inefficient  way to reduce congestion.
  21. Pricing – Charging people for the use of roads, more when and where it is congested, less when and where it isn’t, will foremost reduce travel during congested times, and thereby reduce congestion, and may increase it in uncongested periods when there is excess capacity (depending on the charge)  as people adjust their schedule. This better balances the load on the network, and is a strategy undertaken in most transport modes, as well as other time sensitive businesses like restaurants and movie theaters.
    • How do travelers reduce travel? This is the best part. Each individual decides for themselves when to change location, when to change schedule, when to work from home, when to have something delivered rather than making a trip to get it, when to use a different mode, when to share a ride, when to reroute, and when to forego a trip, thereby making decisions that are individually rational.
    • Doesn’t this lose road agencies money? This is the second best part. With pricing, properly regulated road utilities will see roads as a valuable commodity rather than a commons, and if they increase throughput more they can sell more. They will try to be more efficient about managing the use of the existing roadspace, but won’t have an incentive to build unnecessary new links.
    • Can this work? This is the third best part. There are many proposed strategies to implement pricing. Obviously this has been politically difficult, or it would already be widespread. Transforming road agencies into public road utilities is one step. Further, the emergence of electric vehicles and the advent of autonomous cars reopens the window of opportunity to consider pricing to replace gas taxes, and enable road demands be managed far more directly.

 

There are undoubtedly some pet solutions out there not discussed here, and lots of details overlooked. Feel free to add more in the comments.

As John Lennon might have sung in the 1970s:

Congestion is over, if you want it.

Pricing is the answer and you know that for sure
Pricing is a flower
You got to let it, you gotta let it grow

HOT Lanes in the United States | The End of Traffic and the Future of Transport

The onset of High Occupancy/Toll (HOT) or express lanes is already happening across the US (Figure 13.1). Whereas road pricing requires everyone to pay for use of the facility, HOT lanes allow users to opt into paying a toll in exchange for assurance of uncongested travel (or travel for free or a discount if they are in a carpool). We foresee more HOT lane networks running adjacent to most urban freeways in the US, shaving some time off for those who chose to pay. HOT Lanes are compatible with road pricing systems that do not entirely eliminate congestion, as they provide higher reliability (just as FedEx offers alternative rates for same-day, overnight, and two-day delivery). HOT Lanes will also be important because they are likely to be the first roads to be entirely automated. Given their isolation from other lanes and the premium price, they can be automated much sooner than other roads, which will continue to serve mixed human and automated traffic for at least another decade past the onset of select lanes for automated cars. From Levinson and Krizek (2015) The End of Traffic and the Future of Transport. http://davidlevinson.org/the-end-of-traffic-and-the-future-of-transport/ Figure 13.1, Sources various. Special thanks to David Ungemah and Mark Burris.
The onset of High Occupancy/Toll (HOT) or express lanes is already happening across the US (Figure 13.1). Whereas road pricing requires everyone to pay for use of the facility, HOT lanes allow users to opt into paying a toll in exchange for assurance of uncongested travel (or travel for free or a discount if they are in a carpool). We foresee more HOT lane networks running adjacent to most urban freeways in the US, shaving some time off for those who chose to pay. HOT Lanes are compatible with road pricing systems that do not entirely eliminate congestion, as they provide higher reliability (just as FedEx offers alternative rates for same-day, overnight, and two-day delivery).
HOT Lanes will also be important because they are likely to be the first roads to be entirely automated. Given their isolation from other lanes and the premium price, they can be automated much sooner than other roads, which will continue to serve mixed human and automated traffic for at least another decade past the onset of select lanes for automated cars.
From Levinson and Krizek (2015) The End of Traffic and the Future of Transport
Figure 13.1, Sources various. Special thanks to David Ungemah and Mark Burris.

Incremental Accessibility Benefits and Choice of Subscriptions for High-Occupancy Toll Lanes

MnPASS Accounts per Household

Recently published:

MnPASS Accounts per Household
MnPASS Accounts per Household

This paper presents the results of an investigation into the factors contributing to toll lane subscription choice by using data from the MnPASS high-occupancy toll lane system operated by the Minnesota Department of Transportation. The paper estimates a binomial logit model that predicts, on the basis of aggregate characteristics of the surrounding area, the likelihood of a household having a subscription to MnPASS systems. Variables in this model include demographic factors as well as an estimate of the incremental accessibility benefit provided by the MnPASS system. This benefit is estimated with the use of detailed accessibility calculations and represents the degree to which a location’s accessibility to jobs is improved if HOT lanes are available. The model achieves a rho<sup>2</sup> value of .634, and analysis of the results suggests that incremental accessibility benefits play a statistically and practically significant role in determining how likely households are to hold a toll lane subscription.

Alternative High Occupancy/Toll Lane Pricing Strategies and their Effect on Market Share

Recent working paper:

Janson, M. and Levinson, D. (2014) Alternative High Occupancy/Toll Lane Pricing Strategies and their Effect on Market Share

Price vs. Density
Price vs. Density
  • High Occupancy/Toll (HOT) Lanes typically charge a varying to single occupant vehicles (SOVs), with the toll increasing during more congested periods. The toll is usually tied to time of day or to the density of vehicles in the HOT lane. The purpose of raising the toll with congestion is to discourage demand enough to maintain a high level of service (LOS) in the HOT lane. Janson and Levinson (2014) demonstrated that the HOT toll may act as a signal of downstream congestion (in both general purpose (GP) and HOT lanes), causing an increase in demand for the HOT lane, at least at lower prices. This paper builds off that research and explores alternative HOT lane pricing strategies, including the use of GP density as a factor in price to more accurately reflect the value of the HOT lane. In addition, the paper explores the potential effect these strategies would have on the HOT lane vehicle share through a partial equilibrium analysis. This analysis demonstrates the change in demand elasticity with price, showing the point at which drivers switch from a positive to negative elasticity.

Construction closes road. Neighbor opens bypass. Govt. upset.

Kelston private toll road: Bath council warn ‘is it safe?’

An opportunist businessman yesterday opened a new private toll road across fields around the site of a closed main road – but council chiefs have advised drivers not to use it.

The 400 metre stretch of road has been laid around the spot on the A431 between Bristol and Bath which has been closed since February, and will cost car drivers £2 to use.

The road, which does not have planning permission and has not been given safety certificates, re-opens the A431, which is an important ‘back road’ between Bath and Bristol to the north of the River Avon, and massively used by commuters between the two cities.

 

Road Pricing in the United States

A special issue of  Research in Transportation Economics — Volume 44, Pages 1-70 (June 2014) Road Pricing in the United States, edited by Mark Burris, just came out. We have a paper in here, but the others are interesting as well. This is behind a paywall, so if your University doesn’t subscribe, you can’t get it directly, but I am sure individual authors would be happy to send copies, and pre-prints may be online.

Does road pricing affect port freight activity: Recent evidence from the port of New York and New Jersey
David A. King, Cameron E. Gordon, Jonathan R. Peters

The feasibility of modernizing the Interstate highway system via toll finance
Robert W. Poole Jr.

HOT or not: Driver elasticity to price on the MnPASS HOT lanes
Michael Janson, David Levinson

Using vehicle value as a proxy for income: A case study on Atlanta’s I-85 HOT lane
Sara Khoeini, Randall Guensler

The impact of HOT lanes on carpools
Mark Burris, Negin Alemazkoor, Rob Benz, Nicholas S. Wood

Theory versus implementation in congestion-priced parking: An evaluation of SFpark, 2011-2012
Daniel G. Chatman, Michael Manville

A framework for determining road pricing revenue use and its welfare effects
Timothy F. Welch, Sabyasachee Mishra

HOT or Not: Driver Elasticity to Price and Alternative Pricing Strategies on the MnPASS HOT Lanes

Congratulations to Michael Janson for successfully completing and defending his Master’s Thesis HOT or Not: Driver Elasticity to Price and Alternative Pricing Strategies on the MnPASS HOT LanesJansonBoyce HotOrNotPoster

The Minnesota Department of Transportation (MnDOT) has added MnPASS High Occupancy Toll (HOT) lanes on two freeway corridors in the Twin Cities. While not the first HOT lanes in the country, the MnPASS lanes are the first implementation of road pricing in Minnesota and possess a dynamic pricing schedule. Tolls charged to single occupancy vehicles (SOVs) are adjusted every three minutes according to HOT lane vehicle density. Given the infancy of systems like MnPASS, questions remain about drivers responses to toll prices. Three field experiments were conducted on the corridors during which prices were changed. Data from the field experiments as well as two years of toll and traffic data were analyzed to measure driver responses to pricing changes. Driver elasticity to price was positive with magnitudes less than 1.0. This positive relationship between price and demand is in contrast with the previously held belief that raising the price would discourage demand. In addition, drivers consistently paid between approximately $60-120 per hour of travel time savings, much higher than MnDOT’s value of time (VOT) of $15/hr. Reasons for this include the value drivers place on reliability, a misperception about the actual time savings and that MnPASS users have a greater VOT than the average driver. Four alternative pricing strategies are then proposed. These pricing strategies were tested using a HOT lane choice model based on previous research. The share of transponder owning SOVs using the MnPASS lane was measured against price producing positive elasticity values at lower prices and negative elasticity values at higher prices. MnPASS lane usage rises with price at lower tolls due to the increased time savings benefit but is eventually outweighed by the price, causing the lane share to decrease at higher tolls.

Michael is now working at SRF.

Why we should raise gas taxes now, but implement road pricing soon.

Ed Kohler @The Deets doesn’t seem to like tolls, he asks: What Should be Done if Gas Taxes Aren’t Raising Enough Revenue? : (He is responding to my interview on Jim Pethokoukis’s podcast.)

“One thing that confuses me about transportation funding is the idea that raising gas taxes is politically impossible, but creating new forms of transportation taxes like a tax on every mile you drive would be feasible. To me, the raising gas taxes seems far more efficient since all of the systems are already in place to collect the taxes. “

Why we should raise gas taxes now:

  1. Road quality is not where we would like it and will only get worse if insufficient revenues are raised to maintain and reconstruct existing infrastructure, as existing roads continue to age and deteriorate.
  2. Raising gas taxes is more administratively efficient in the short run than implementing tolls, especially tolls requiring lots of infrastructure. It presently has lower collection costs. See [1], [2]. There is no guarantee that will remain true as new technologies change the cost of collection.
  3. The gas tax is an ok environmental tax. There are better environmental taxes (but at $0.11/gallon for the carbon price of $43/tC, this seems too small to matter from a demand perspective). The gas tax is a terrible congestion tax however, as it does not differentiate by place, or more importantly, time of day. Yes idling consumes slightly more fuel than engine off, but newer engine technologies are making idling more efficient.
  4. Currently roads are only partially funded with gas taxes, general revenue is a major source. This charges non-users as well as users, and sends no signal about the appropriate amount of roads that should be built or how scarce road space should be allocated.
  5. So, states can (and should) raise the gas tax before using property taxes or general revenue to pay for roads. (For marketing purposes, the cynical politician should of course call it a wholesale tax, like Virginia just did. Thus they are taxing refiners instead of consumers, right? (However making the tax a percentage of sales price rather than of volume increases volatility of revenue).

We do need to be careful that the money gets spent on maintaining the valuable parts of the existing system, not building wasteful new facilities. There is a serious lack of trust in existing institutions.

Why we should implement road pricing soon:

  1. Congestion is a problem. It is not getting measurably worse, but it is not obviously getting better. Even if reduces in the aggregate, it won’t disappear to zero anytime soon. All of it is unnecessary. But behold, there is a theoretically sound and empirically proven solution: congestion pricing.  Almost all economists like congestion pricing. The arguments for it are fairly straight-forward. Congestion delay is a dead-weight loss. If instead of charging time, you charged the monetary equivalent of the marginal cost of travel (the delay you impose on others), that loss could be eliminated. If you took the  toll revenue raised by allocating demand in an efficient way, and used it  to maintain existing infrastructure, and returned the surplus to people (e.g. through lowering some other tax or providing an annual road dividend, (make the rebate as progressive as you like, it doesn’t matter from a transportation perspective)), society as a whole would be better off. There is a huge literature on this. (Sadly, congestion pricing cannot be achieved with only gas taxes (unless we required really small gas tanks in cars that lasted only 15 minutes or so … a truly bad idea). Something that charges by time and place is required. That is a toll of some kind.)
  2. Emissions continue with the Internal Combustion Engine. If gas taxes are replaced with something that is more effective in reducing road use (for an equivalent amount of revenue), it will result in lower overall VMT and thus less gasoline consumption and lower emissions. (And if it results in less congestion, less fuel sales from the time spent idling or driving inefficiently in stop-and-go conditions). Nevertheless, the marginal effect of the gas tax on demand is relatively small. We can see with the huge swing in gas prices in the last decade, VMT was essentially flat. Anything that made the costs of travel more salient would reduce demand. This depends on the design of the system, invisible systems have low saliency. An in-vehicle taximeter would be highly salient.
  3. Electrification is coming. At some point, electric vehicles will become non-ignorable share of free-riders on the road network. EVs do not require less road pavement or cause less congestion than similarly sized ICE-vehicles. See [3]. The rate of electrification is unclear [4], but given federal fuel efficiency requirements, it is not implausible that most new vehicles will be EVs or EV-ICE hybrids in a 10 year time frame.
  4. Road pricing would facilitate charging more for scarce resources (weak bridges, thin pavements, travel at peak times) and more for more damaging users (e.g. heavy trucks on few axles).

The politics:

  1. In most countries with higher gas taxes, those high gas taxes are not hypothecated, i.e. they are not spent on transportation the way they are in the US (e.g. Australia). So the high gas taxes are independent of road maintenance. Some countries (France, Italy, Japan, China) toll their motorways. Some don’t. Some toll trucks (e.g. Germany). The gas taxes in these countries go to general revenue. The tie between usage and payment in the US is to be commended and should be extended, not weakened. It sends better signals if roads (and other transportation) are paid for directly by beneficiaries. (Feel free to tax other externalities separately
  2.  Some organizations in favor of tolling/pricing in addition to conservative and libertarian think tanks include the decidedly un-libertarian  Environmental Defense and Sierra Club, while the politically neutral GAO says pricing could be more equitable and efficient. The argument will be about the appropriate toll to set, but the same conservative road pricing-favoring organizations that are condemned for sponsorship by oil companies also publish reports that advocate road privatization, and we know what will happen to prices if roads are private — they will go up, which will lower travel (and fuel) demand. (That is, profit-maximing tolls are higher than welfare maximizing tolls.) (Whether this is good or bad is another debate).
  3. Will government run, politically driven agencies be able to implement tolling? The jury is of course out, but the evidence is that it is hard, or we would see it more widely. Similarly if raising gas taxes were politically easy, they would already be higher. Minnesota’s gas tax was raised in 1988 and again in 2008, about once every 20 years. The federal gas tax was last raised in 1993 (20 years ago). Congestion pricing in general is more popular after it is implemented than before. There are many experiments going on, trying to figure out how to achieve acceptability. I like the road utility myself.

I have discussed some of the difficulties of implementing pricing before. But eventually, we will have electrified the fleet enough, we will be annoyed enough with congestion, the damage wrought by heavy vehicles, and so on, that we will do something else beyond (or in addition to) the gas tax. We will also have given up the last vestiges of concerns about privacy, and the cost of the technology to implement such a system will have dropped.  Hopefully we will phase it in gradually, to avoid the potential catastrophe of a Big Bang rollout.

We need to think not only about what will (or should) happen tomorrow, but over a two-decade period.