catallaxy files

catallaxy in technical exile

Road pricing vs highway spending in the US

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The AEI-Brookings Joint Centre has a new paper out on the relative efficiency of spending more on highways vs road pricing in the US. Here is the abstract:

Policymakers attempt to reduce the growth of congestion by spending billions of dollars annually on our road system. We evaluate this policy by estimating the determinants of congestion costs for motorists, trucking operations, and shipping firms. We find that, on average, one dollar of highway spending in a given year reduces the congestion costs to road users only eleven cents in that year. We also find that even if the allocation of spending were optimized to minimize congestion costs that it still is not a cost-effective way to reduce congestion. We conclude the evidence strengthens the case for road pricing.

Of course bear in mind that their specific findings apply to the US highway system but their conceptual arguments are just as applicable outside the US. From the paper:

Economists have argued that road pricing should be the primary approach especially because it is effective during the very rush hours that would otherwise require th most expensive capacity expansions. Moreover, unlike spending, road pricing produces benefit without using public financial resources. The only government spending required is the modes sums to set up the initial tolling mechanism …Notwithstanding its contribution to efficiency, congestion pricing is criticized—and dismissed as politically infeasible—because it would primarily benefit high-income motorists who value the time savings. However, Small, Winston, and Yan [14] show that road prices can be adjusted to account for motorists’ different preferences and substantially reduce distributional concerns while producing efficiency gains. In contrast, current highway spending is finance primarily by the gasoline tax, which is generally considered to be regressive (Chernick and Reschovsky [15]). We are not aware of estimates of how road pricing would affect the freigh sector, but given their high value of time, truckers and shippers are likely to find that efficient congestion tolls are cost effective. Moreover, they would likely pass on some of the cost saving to consumers.

In the final analysis, policymakers’ lack of interest in congestion tolls may have less to do with pricing’s distributional effects than with the distributional effects of highway spending.

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Written by Admin

May 19, 2006 at 9:56 am

Posted in Uncategorized

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