Road congestion.

Road congestion

Nicola Acton 13JLB

‘The increase in congestion on Britain’s roads is an example of market failure’

A) Why has there been an increase in congestion on British roads?

B) Explain the term market failure and explain why road congestion is an example.

C) Explain the method of road pricing and give both the advantages and disadvantage of road pricing as a way of dealing with the congestion problem.

<A>

The underlying causes of congestion are far more complicated than many traditional interests have historically been willing to admit. The ability of available roadway space—the most traditional method of measuring supply or capacity to meet traffic demand, is just one of a set of several underlying factors that research has found contribute to traffic congestion.

Whereas more than half of all children walked or bicycled to school in the 1950s, that number has now fallen below 10 percent as streets have become more dangerous due to traffic. Combined with the loss of school bus service, the resulting trend has been an overwhelming increase in parents driving their children to school, clogging local roadways during critical peak hours. An estimated 20-25 percent of rush hour traffic on local streets and roads is now attributable to the school commute.

To make matters worse, not only does the typical suburban development model characterized by low-density cul-de-sacs, wide, high-speed arterials, and massive intersections make traffic management difficult, it also makes it less cost-effective for public transport to serve scattered destinations and makes walking or bicycling both inconvenient and dangerous.

Many experts believe that widening motorways and main roads is only a temporary solution at best to the complex problem of traffic congestion. Indeed, research has pointed to a result known as "induced traffic" that suggests new and wider roads actually create additional traffic, above and beyond what can be attributed to rapid population increases and economic growth. In larger areas, drivers will often abandon carpools and public transport when additional roadway space is made available, thus creating additional trips and more traffic. In the longer term, the promise of more convenient transportation access allows commuters to live further from work, increasing development pressures and thus fuelling even more traffic demand.

The lack of affordable and mixed-income housing near employment centres, and the imbalance between jobs and housing, creates the notorious commutes between the countryside and city areas.

Also, with many people losing their confidence in public transport due to long delays, strikes and many rail crashes it seems much easier to take the car. It is important to note that the skewed pricing signals given to travellers appear to make road travel, even at the most congested periods of the day, entirely free, while public transport is often perceived as too expensive.

<B>

Market failure is the inability of an unregulated market to achieve allocative efficiency in certain circumstances and we see a severe re-allocation of resources. There are various reasons why allocative efficiency may not be achieved, one of these is externalities.

An externality is said to exist when the production or consumption of a good directly affects businesses or consumers not involved in the buying or selling of it and when those spill over effects are not reflected in market prices. The spill over effects are known as external costs or benefits.

When people use their cars other ...

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<B>

When people use their cars other people suffer from exhaust fumes, congestion and noise. These negative externalities make the marginal social benefit of using cars less than the marginal private benefit (i.e. marginal utility).

The optimum equilibrium for society would be where the marginal social cost is equal to the marginal social benefit (Q!). However, a free market left to itself will produce where the marginal private cost is equal to the marginal private benefit (Q^). If there are negative externalities in consumption, a private market will therefore tend to over-provide a good.

Congestion in urban areas can be seen as a form of market failure because the socially efficient output is not produced. The social optimum amount of vehicles on the road must be exceeded if congestion results. The marginal cost to the consumer is the only cost really considered when a driver makes the decision to use the car. What is not taken into account are the costs to other road users, the cost to society collectively; the social cost or themselves to some extent. The marginal cost to other road users is the added congestion caused by the extra car on the road. The marginal costs to society collectively are the increase in emissions produced by the extra journey made, the follow on effects from this are large, rising asthma levels in the local area, decaying buildings and collapsing roads could be caused because of the high congestion rates. The marginal cost to the individual could be the opportunity cost of the time spent in congestion. If the more space efficient bus made the journey, the traveller would be able to read the newspaper, play on a hand held computer or even do some work, this is not possible if the car is chosen to make the journey. The marginal utility of existing users of the congested roads would decrease with the addition of an extra motorist, an extra 10 or even 100 motorists would lower the marginal utility levels dramatically. But each individual’s marginal cost wouldn’t be affected, which explains why the marginal cost and marginal social cost diverge.

Congestion is not the only cost that occurs from a large number of cars on Britain’s roads. We must also consider, road damage costs, accidental externalities and of course environmental costs. Heavy vehicles basically cause Road damaging as the damage to the road pavement increases to the fourth power of the axle load.

Accident externalities arise when extra vehicles on the road increase the probability that the other road users will be involved in an accident. Accident probability depends to a large extend on distance, driving time and particularly the other traffic. This is why accident costs will be treated like congestion costs.

Environmental damage comes in various forms, such as local: emission of CO, NC, NO2, global: emission of CO2, CFC, water pollution and noise and vibrations.

<C>

Congestion is inefficient, polluting and dangerous. Removing just 5% of traffic at peak times could substantially reduce or even eliminate rush hour congestion from many cities. One approach that is starting to stoke interest among municipal leaders is road pricing. The theory seems sound enough: introduce a price on bringing cars into congested areas that incite drivers either not to travel unnecessarily or to vary their times of travel or, indeed, to try public transport, walking or cycling. With the right approach, drivers who incur higher prices during rush hour periods would benefit from reduced congestion and travel time, while nonessential travel would take place at less congested and cheaper times.

Road pricing has been debated in political circles for many years. The main debate was about the difficulties that would occur in trying to impose a system in order to toll drivers. These problems no longer exist, and advances in electronic devices have made sophisticated road pricing schemes more feasible. The new technology of electronic tolls no longer requires motorists to halt at tollbooths. Therefore, it prevents additional congestion. Drivers would be given an electronic number plate, which signals to the recording computer the presence of a vehicle. This would be the most direct way to charge the amount specific to the road and the time of the day. The devise could charge users via bank account or monthly bill. This would also allow a central computer to monitor roads with the greatest amount of use.

Also, another method that has been put forward is for drivers to buy a travel card (similar to those on London Transport) and display these on their dashboards when driving in and out of priced roads.

However, the political will is often lacking, perhaps because of uncertainty about voter reaction.

I believe there are both advantages and disadvantages to the proposed road pricing theory.

ADVANTAGES OF ROAD PRICING

Road pricing is a good instrument to use to internalise most of the external effects mentioned earlier, especially in the case of congestion costs, it appears to be the optimal method of internalisation because a price mechanism would replace the present queuing mechanism, which is allocatively inefficient.

Because road prices would be primarily connected with congestion costs, some distributional and locational effects could arise. Costs of driving in non-urban areas would probably fall whereas urban driving costs would increase so that in the medium run, the quality of the public urban transport system would improve.

In the case of pricing highways on the continent, road pricing is a good instrument to overcome the free rider problem of foreign carriers using "home country" highways. This is especially interesting against the background that current ways of financing highways are very different. It is fair to say that foreign carriers buy their petrol abroad, which is cheaper, and they do not contribute to business in the UK. For that reason actual competition between international carriers is not neutral.

With the proposed electronic system, there seems to be 2 benefits. The first of these is the business generated from the insertion of the microchips and the second is the ease of use i.e. simply driving past a scanner.

Furthermore, Ken Livingston has stated that he believes traffic will reduce by 15% with the implementation of the system and he says money generated from the implementation of such a scheme will be used not only on the maintenance of our roads but also into investment of our public transport which again reduce the number of cars on the road leading to a better environment for all. A recent survey suggested that 70% of the public would not mind paying fuel tax if it was invested in public transport.

The system is already used in Singapore and the immediate reaction was a reduction of 24,700 cars during the peak time and also, traffic speed increased by 22% at this time. And also, in Trondheim in Norway the toll was not introduced in order to make people leave their cars at home but soon, it was noticed that congestion was reduced and political consensus was that some of the money generated could be used for public transport within the city.

DISADVANTAGES OF ROAD PRICING

The cost of implementing electronic toll system is very high. The UK government estimates that the implementation of the system will cost £2 bn for only a small area such as London. Plus individual costs for every vehicle of £40 each, not including additional costs of controlling the system. Also, we are likely to see a lagged response and it would take time to raise revenue. The initial costs are high thus; they would have to pay off in the long run.

Ken Livingston, has suggested a charge of £5 for entering London, many believe that when we consider, fuel taxes, road tax, and maintenance of a car, £5 to enter London is extortionate. It is important to consider those on lower incomes, who may find it difficult to pay a regular £5 charge. This could lead to the displacement of traffic, in the way that people will try to avoid the tolls and take other routes down side roads- this is likely to cause congestion in quieter streets not to mention accidents because the streets are so narrow.

The introduction will be hard and people will object to it. They believe it affects their rights of passage and with an estimated 230 cameras per zone it compared to the big brother phenomenon.

Tax on roads may have damaging effects on the economy. Because the cost to firms will be greater and it may also serve to make London a less desirable centre, there will be a reduction in Aggregate Supply. There will be growth in unemployment as firms will not be able to afford workers, this will cause a slowdown in economic growth and could even cause an inflationary threat.

In terms of negative environmental externalities, road pricing is (with the exception of noise) probably not the optimal instrument for internalisation. Taxes on fuel or emission fees, for instance, charge vehicle emissions in a more direct way and they are very simple to design. Some believe that there should be different taxes for those people who do not have public transport available to them easily and those who do but choose not to use it.

Furthermore it must be mentioned that the effect of road pricing depends to a large extent on the authority that receives the revenues and its way of using the money. Economists would argue that the profits made should be reinvested into the transportation system to generate an efficient outcome rather than cross-subsidising other traffic modes or other state activities.

CONCLUSION

In conclusion I believe that road pricing is the best instrument to internalise the costs of congestion and road damage. Although the initial costs of installation are high, these costs would probably quickly be exceeded by the efficiency gains of corrected prices. Nevertheless, road pricing cannot perfectly internalise external environmental costs. That is why instruments like "fuel taxation" or "emission fees" will still be necessary to design an optimal price mechanism in the transportation sector that sets the correct incentives. I believe pricing could be the trick to remove that 5-10% of traffic that causes congestion in peak periods in our cities. If that means picking up the children on time and being able to drive into city centres to shop, then surely that would be a price worth paying.

Finally, what’s perhaps most important is a recognition that solving these problems will require strong leadership from a government level in addition to management, planning and eventual implementation at the regional and local levels. Traffic congestion must thus be tackled within a broader context of economic, environmental and social goals and its solutions must be compatible and work in support of solutions for a broader range of issues.