Journey
Costs &
benefits
Number of vehicles on road
The dashed line represents the socially optimum level of vehicles on the road and the marginal utility of the user. A higher level of vehicles on the road, shown by the dotted line, shows a larger marginal social cost, marginal social benefit and lower marginal utility gained.
In order to reduce or eliminate the market failure of congestion, it is necessary for attempts to be made at reducing the number of cars on the road, so the number is nearer the social optimum. There are problems involved with identifying the social optimum number of cars, mainly due to the lack of information concerning the outputs of each car, the monetary cost of damage done, and whether the car is definitely to blame for such damage. This is the reason the externality cannot simply be taxed or charge to the producer, it is too hard to know which car contributed to most of the damage and harder to prove so in order to receive the necessary charge. This is why the general number of cars on the road has to fall.b). Discuss the economic arguments for using revenue from road pricing schemes to support passenger transport systems in congested urban areas. (12)
Inorder to reduce the number of cars, which use the roads in congested areas, there have been many options for the government of the day to introduce. The most commonly used is to simply increase the costs of motoring in general. This can be done through the increase in the amount of which a tax disc cost levies on fuel, the initial purchase on a car and other general ways to increase the cost of motoring, have failed. They often punish those who may not deserve to be as much as others. The increase in fuel may have little effect in reducing the congestion in urban areas whilst it infuriates the motorist in the country where it is not congested but also not possible to travel by other means at times. The increasing of the initial motoring costs is unlikely to deter people to make an extra journey; it may have the opposite effect whereby people make more journeys to get 'value' for the large outlay of the car. The problem of congestion lies in busy cities, town centres and the surrounding roads. The discouraging of people to make the additional journey could ease the problem of congestion by car, especially the short journeys of in and around the town or city. The negative externalities produced by cars are worsened when the car is in traffic, not when driving at a normal motorway speed. As the main problem of car use is caused by slow moving traffic in built up areas, it would be wise to address that as the problem and attempt to combat it.
Road pricing would basically involve the charging of motorists to use the roads in and around the congested urban areas. It is hoped that by charging motorists to use the road space, they would make alternative arrangements to travel; walk, cycle, share a car or use public modes of transport such as buses. The reduction of cars on the road would inevitably lead to a reduction in congestion and therefore the problems it causes.
Road pricing can be done in a number of ways, and technology advances have allowed these ways to be varied and efficient. In Oslo road pricing was introduced by placing a toll ring around the city centre, 19 toll stations were placed in Oslo located on every access road to the city centre. 8 of the toll stations are on main roads and the remaining 11 are on minor roads. The stations have lanes for conventional payment to gain access to the road, they also have lanes for electronic payment, done through a chip placed in the subscribers car which is automatically registered and charged the relevant amount, this saves queues at the toll stations and congestion once more. The success of the scheme can be seen through the increased number of electronic subscribers. Other positive outcomes of the scheme include the increasing use of public transport, of which quality has improved as well as the journey time that has been increased due for the both public and private transport users. The increase in public transport has occurred through the increased marginal cost of motoring in Oslo. There have been environmental advantages as a result of the reduction of cars and congestion around the city.
Bergen implemented a road-pricing scheme with the specific aim of decreasing private car usage alongside the aim of increased public transport use. This was done so through the use of toll rings. They since doubled the initial cost as well as differentiating the charges in accordance with the time of day. It did not have the impact so required as the price charged may have been too low, seeing how price inelastic the demand for motoring is, also the public transport system may not have been an attractive alternative.
The Oslo example shows how road pricing can be very effective if done correctly and if viable alternative methods are available. The Bergen example shows it is not an overnight remedy for congestion.
The question remains of how the government should use the revenue created from road pricing. The revenue could be used to build more roads or to cover the cost of a new road, such as the A1 in France where road-pricing revenue helped to redeem the initial expenditure. If road pricing schemes are introduced in order to promote the use of public transport whilst discouraging the private motorist, it is surely only natural that the revenue received should be used to boost the public transport available.
How the money would be used to boost public transport would be a point for discussion. As the majority of bus operators are private, and thus profit making firms, government subsidies for them to improve service may just end up subsidising the supernormal profits of the bus operator. This would be done, as the costs would be lowered, as the government would have subsidised them to ensure service is provided. Whether the service would be of a high enough quality is questionable if the firm's sole aim is profitability.
The bus operator only operates the profitable routes, with government subsidies, the unprofitable routes from the rural areas etc. whereby car essential is seen as a must could be run. This would have social benefits because of the reduction in pollution and more people travelling by bus achieve a more efficient use of road space.
The revenue earned by the transport system could be ploughed back into the transport system, known as hypothecation, in other ways than simply subsidies. The revenue could be used to set up and provide better regulations by which the bus companies must adhere to, quality of vehicles, promptness, and access for disabled/children all high on the objectives that the firms must meet. This should ensure the quality of the buses is of such a standard that it is a genuine alternative to private motoring.
The revenue could be used to subsidise the cost of public transport by the government distributing vouchers directly to motorists to use the public transport system, this would be done in return for not using private
Economists' favorite remedy for traffic congestion is road pricing. Not only is road pricing based on sound economic principles, but also given current technology it could be implemented at reasonable cost and in a flexible and sophisticated manner. But there are serious obstacles to the widespread adoption of road pricing. There are problems of phase-in: the fixed costs of introducing any system of road pricing, as well as the problems of coordinating road pricing across jurisdictions, including standardization and the treatment of out-of-towners. Political acceptability is an even more serious obstacle. How can congestion pricing be 'sold' to economically unsophisticated voters who are justifiably suspicious of any new government taxes and charges? This paper will not argue against road pricing, though it will point out some of the difficulties associated with the policy that economists have tended to ignore or to gloss over. Rather, it will examine some of the alternatives to road pricing. More specifically, it will focus on two related questions, one positive, one normative, on the assumption that congestion pricing is not introduced, at least on city streets. The positive question: What are the likely effects of policies other than road pricing on alleviating road congestion? The normative question: What mix of policies (road pricing excluded) would be most effective in alleviating traffic congestion? Throughout the focus will be on urban traffic congestion. Alternatives to road pricing can be grouped into five categories: 1. Expansion and upgrading of existing road capacity; 2. Expansion and upgrading of mass transit; 3. Regulation; 4. Information; 5. Non-road transport pricing. While the emphasis of the paper will be on qualitative analysis, there will be some attempts at quantification via back-of-the-envelope calculations.
The reason why road pricing gives a benefit is congestion. Each driver, in using roads in congested conditions, imposes delays on everybody else, and these delays have a cost not taken into account in his personal choices. Therefore some journeys are undertaken for which the benefits to each driver are less than the costs they cause to everybody else, and the overall use of resources - waste of resources - is greater than it should be. But so far the practical history of road pricing has been marked by flirtations, studies, cold feet, pricing interruptus. The reason for this - in my view - is because for a quarter of a century nobody took seriously the implications of a couple of lines of calculus in Thomson's Appendix to the Smeed report, which revealed - but obscurely, as through a glass, darkly - that although pricing certainly reduces congestion, the larger part of actual benefit from road pricing does not consist of this congestion relief. The benefit sits, 'locked-up', in the revenue collected, and it is only released when the revenue is used.
More subtle recent analyses show that if road pricing were implemented in a way which also had environmental benefits, and was geared to providing economic advantages to freight vehicles and buses, then the direct benefits can be magnified. But the core point remains: the calculated benefits to a considerable extent are crystallised in the revenue streams. This is why discussion of road pricing without explicit attention to the use of revenue streams is inherently unlikely to be able to command a consensus in its support. I treat this as an axiom of contemporary transport policy. So we have these two important policy propositions, that have now been with us for a generation: that congestion could be less if people travelled by slower methods of transport, and if they paid for what they now think of as free. Well, what do you think? As policy statements, they somehow lack that magnetic lure which could bring them into the manifestos. The banner 'slow and expensive' fails to inspire. But let me suggest another axiom. If there is a policy which genuinely increases efficiency, then there should be some way of implementing it that can win support: there are benefits to be had; there are more people who stand to gain than to lose.
So why does it sound so unattractive? Where is the flaw in the argument? Where was the flaw in the argument, 30 years ago?
Well, one flaw was that the tools we had for understanding how individuals make their travel choices were misleading and tendentious, and another was that economic orthodoxy, quite wrongly classifying the revenues produced by charging for congestion costs as a 'tax', treated them as a heresy called hypothecation. But the real barrier to implementation was that the spirit of the time was heading in an entirely different direction. There was on offer an easier, more comfortable, painless, modern, more exciting way of solving congestion. We could simply build our way out. If traffic levels get too close for comfort to capacity, increase the capacity. Here I have to introduce a rather well-rehearsed few minutes into my lecture, which some of my old friends here have since 1991 patiently sat through on more occasions than I can understand. But for my new friends you can't really judge what I am on about without it. From the late 1950s onwards the transport planning orthodoxy was what Susan Owens has called 'predict and provide'. The axiom was: first we forecast how much traffic there will be, and then we build enough road space to accommodate it. This was the axiom that resulted in a rapid, huge, expansion of road capacity, and produced the national network of motorways - now, we cannot imagine life in a modern economy without them. It was also the axiom that resulted in some things that we now, mostly, have come to realise were a grievous mistake, like the destruction of the heart of some of our city centres to make room for urban motorways. Here, our imagination of life without them is easier, and in many places town centre road capacity is indeed now being reduced or closed, and the space returned to more productive use, though alas many historic structures have gone for ever.
Good or bad, the axiom's high point was, by one of the ironies of history, its final hour: the 1989 programme of road building, based on the 1989 national road traffic forecasts, called 'Roads to Prosperity'. This was the last time when any Government transport policy tried - even partially, and with caveats and exceptions - to devise a roads programme intended to 'meet the demand'. It was launched with the greatest of fanfares, but even by the time of the launch the process which would lead to its abandonment was under way, and was, indeed, largely completed under the previous Government - this is not a party-political difference. The flaw was, the programme would not keep pace with traffic growth.
