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Equity and Congestion Pricing

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Michael Manville, University of California, Los Angeles

Published in: Economy & Finance
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Equity and Congestion Pricing

  1. 1. Congestion Pricing Efficiency and Equity Michael Manville Department of Urban Planning Institute of Transportation Studies UCLA
  2. 2. Median home price: $1.4 million Average commercial rent: $72/sq ft Price to drive across: zero Price to park on residential street: zero Median home price: $197,000 Average commercial rent: $12/sq ft Price to drive across: zero Price to park on residential street: zero The Importance of Prices: How We Drive Price gets divorced from value
  3. 3. Price Controls Have Four Consequences • Shortages – You run out of the good • High Search Costs – People expend extra energy to find the good • Misallocation – The good is consumed both by people who value it a lot and people who don’t • Shadow Markets – the cost of the good ends up in the cost of other goods
  4. 4. Parking spaces could trade for as high as $20 Shadow Markets can Become Black Markets
  5. 5. Roads are the Infrastructure We Run out Of
  6. 6. Prices Trigger More Judicious Use • 2018: – Sacramento: 70 percent of households have meters – Household water use at 12,900 gallons per month • Fresno: residential meters installed – Household water use at 200 gallons per person per day
  7. 7. Congestion is Non-Linear Small share of vehicles can tip a road into gridlock. So slowing or preventing their entry removes bottlenecks, and moves more people.
  8. 8. Context: Pricing and Equity • Pricing is not a strategy to affirmatively advance equity • Pricing is an efficiency strategy • It can be done in ways that don’t exacerbate equity • It may advance equity along some dimensions • It doesn’t directly address the most fundamental inequities in the system • But - it can pair well with policies that do
  9. 9. Two Fairness Objections • Double-taxation: We already pay to use these roads (gas taxes, etc) • Regressivity – burden on low-income drivers, benefit for the affluent
  10. 10. Do We Already Pay to Use Roads?
  11. 11. What About Regressivity? • Tolls are regressive • Regressive doesn’t automatically mean “unfair” • We can mitigate the unfairness that does exist
  12. 12. Two Conceptions of Equity • Ability to pay: those who have more pay more • User Pays: People account for the full costs of their actions • Pricing conforms to the second and violates the first • Free roads violate both
  13. 13. Free Roads: A Subsidy Mostly for the Affluent
  14. 14. Pollution from Congestion has Serious Consequences
  15. 15. Free Roads: A Penalty for the Urban Poor
  16. 16. Low-income people near freeways • …are less likely to use freeways
  17. 17. It is wrong to levy regressive charges to access essential goods
  18. 18. Some Regressive Charges for Essential Goods • Transit fares • Sales taxes for transit • Gasoline • (And gas taxes) • Cars • Water and electric meters • Things at grocery stores
  19. 19. The Nature of the Unfairness • Low-income drivers with few obvious alternatives to using busy roads and busy times
  20. 20. Should we Give the Money to Transit?
  21. 21. The Nature of the Unfairness • Low-income drivers with few obvious alternatives to using busy roads and busy times • Giving money to transit doesn’t solve this problem • Might be a good idea • Might be progressive • Not the same as remedying specific harm
  22. 22. We Have Ways to Solve This
  23. 23. Market Design and Redistribution with Priced Roads • Right now no market exists, so opportunity to design one from scratch means agencies can be proactive about fairness considerations • Approaches: – Exemptions – Gradualism – Redistribution
  24. 24. Exemptions come back to haunt you
  25. 25. Gradualism
  26. 26. Redistribution • The economic ideal: lump sum payments to all people below a certain income level • More feasible: transponders pre- loaded with money for income- qualifying people • Other options: EITC-style rebates, discounted rates
  27. 27. A counterfactual • Suppose all freeways today were congestion-priced – Much less congestion and pollution – More transit ridership – Revenue used to help low-income people, and pay for public projects • Someone proposes making the roads free • Would this be fair?
  28. 28. Status Quo Bias • More congestion • More pollution • No revenue to compensate for the harm • Would we support a proposal to abolish electric and water meters?
  29. 29. Thank you mmanvill@ucla.edu Find research reports and policy briefs at www.its.ucla.edu Tr a n s p o r t a t i o n f i n a n c e , p u b l i c t r a n s i t a n d i n n o v a t i v e m o b i l i t y

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