Urban[ism] Legend: Transportation is a Public Good

In a recent post, commenter Jeremy H. helped point out that the use of the term “public good” is grossly abused in the case of transportation.  Even Nobel economists refer to roads as ”important examples of production of public goods,” ( Samuelson and Nordhaus 1985: 48-49).  I’d like to spend a little more time dispensing of this myth, or as I label it, an “Urban[ism] Legend.”

As Tyler Cowen wrote the entry on Public Goods at The Concise Library of Economics:

Public goods have two distinct aspects: nonexcludability and nonrivalrous consumption. “Nonexcludability” means that the cost of keeping nonpayers from enjoying the benefits of the good or service is prohibitive.

And nonrivalrous consumption means that one consumer’s use does not inhibit the consumption by others.  A clear example being that when I look at a star, it doesn’t prevent others from seeing the same star.

Back when I took Microeconomics at a respectable university in preparation for grad school, I was taught that in some cases roads are public goods.  We used Greg Mankiw’s book, “Principles of Economics” which states the following on page 234:

If a road is not congested, then one person’s use does not effect anyone else. In this case, use is not rival in consumption, and the road is a public good. Yet if a road is congested, then use of that road yields a negative externality. When one person drives on the road, it becomes more crowded, and other people must drive more slowly. In this case, the road is a common resource.

This explanation made sense, but I was skeptical – something didn’t sit right with me.  Let’s take a closer look.

First, Mankiw uses his assertion as an example of rivalrous vs nonrivalrous consumption, while not addressing the question of excludability.  Roads are easily excludable through gates or any other mechanism that could restrict access.

Furthermore, Mankiw’s assertion that an uncongested road is nonrivalrous is simply confusing rivalrousness with the fact that the road is under-utilized and/or over-supplied at certain times.

For a silly example: if the government literally manufactured mountains of marshmallows free for the taking, Mankiw would have to consider marshmallows equally as non-rivalrous and non-excludable as uncongested roads in the US.  Would he then call marshmallows a public good?

Thus we can clearly see that all roads (when done right) are neither nonrival nor non-excludable.   We can use the diagram below (from Living Economics) to see that a congested (or tolled to prevent congestion) road is a private good, and in the case that a roadway is oversupplied, it is simply a “low-congestion good”, often called a “club good.”

I found this diagram at a very helpful site: livingeconomics.com

Roads are the more commonly misused example of a public good, but we can apply the same logic to transit.  First, most transit operations in the US already use a method of exclusions: the turnstyle.  Second, we can see that non-rivalrousness is simply a function of over-supply in the case of the subway car that isn’t full to capacity.

As economist, Don Boudreaux puts it :

So I’m more than sympathetic to the claim that government provision of roads, bridges, and highways distorted Americans’ decisions over the years to drive and live in suburbs.  But my sympathy for this claim comes from my rejection of the classic, naive case for government provision of public goods — and once that case is rejected, it cannot then be used to argue for government provision of, say, light-rail transport.

Does this alone prove that roads should be privatized? No, but the fact roads are either private goods or grossly oversupplied help weaken anyone’s case that transportation is government’s business in the first place.

I should warn you, if your Microeconomics professor teaches you this misconception unchallenged (perhaps using the Mankiw book), and gives you a true/false exam question of whether an uncongested road is a Public Good, you may want to answer “true”, or else be prepared to dispute your grade.  (And feel free to send your professor a link to this post.)

Next time you catch a commenter repeating this Urban[ism] Legend (like Jeremy H. did), refer them to this post.  Here are a few other links to back you up:

Are Roads Public Goods, Club Goods, Private Goods, or Common Pools? by Bruce Benson, Floria State University

Privatizing Roads by Tim Haab, “Environmental Economics” (blog)

Public Goods and Externalities: The Case of Roads by Walter Block, Loyola University

Highways Are Not (Economic) Public Goods by Rob Pitingolo, “Extraordinary Observations” (blog)

Public Goods from an Austrian Economics perspective


Links

1. Laneway housing, Vancouver vs. Toronto.

2. New York state lawmakers want to ban using a phone or listening to headphones while crossing streets. Unfortunately for us pedestrians, there are very few limited access, grade-separated walkways, so in essence this would criminalize listening to an iPod while walking.

3. An interesting article about transportation in Singapore, with an emphasis on congestion pricing and other ways of recouping the enormous opportunity costs of urban roads.

4. I’ve been aware of this for a while, but it still shocks me every time (emphasis mine):

We know New Yorkers are being injured and killed just about every day. (Like the 35-year-old woman who was run over by a dump truck on the Upper East Side Monday while legally crossing the street. Did you hear about that one? The dump truck driver stayed at the scene and wasn’t drunk, so it was basically a freebie for him — a clean, legal kill as far as the NYPD is concerned. Can you imagine if she were your wife or sister or colleague? Anyway… back to those damned bikes, right?…)

5. Yet another example of why I don’t think the Texas Transportation Institute’s congestion metrics are useful.

6. As if we needed any more proof: Big cities are inherently green.

The Texas Transportation Institute’s funny definition of “congestion”

As if anybody didn’t realize it before, it’s now obvious that the Texas Transportation Institute, despite its prestige, is intellectually bankrupt. David Alpert at Greater Greater Washington says it better than I could:

The Texas Transportation Institute today released the final version of their report on congestion, which ranks the DC area tied for first with Chicago in hours wasted in traffic. Unfortunately, the report’s methodology completely misleads as to the seriousness of traffic, and TTI is pushing the wrong policy solutions.

The TTI report narrowly looks at only one factor: how fast traffic moves. Consider two hypothetical cities. In Denseopolis, people live within 2 miles of work on average, but the roads are fairly clogged and drivers can only go about 20 miles per hour. However, it only takes an average of 6 minutes to get to work, which isn’t bad.

On the other hand, in Sprawlville, people live about 30 miles from work on average, but there are lots and lots of fast-moving freeways, so people can drive 60 mph. That means it takes 30 minutes to get to work.

Which city is more congested? By TTI’s methods, it’s Denseopolis. But it’s the people of Sprawlville who spend more time commuting, and thus have less time to be with their families and for recreation.

Sadly, despite CEOs for Cities pointing out these methodological problems last year, TTI went ahead and finalized its report without fixing them (PDFs). TTI ranks Portland as worse than Nashville, with a Travel Time Index (TTI) of 1.23 for Nashville and worse TTI of 1.15 for Portland. However, because of greater sprawl, Nashville commuters spend an average of 268 hours per year commuting, while the average Portland commuter spends 193 hours per year.

What does this mean for public policy and the Washington region? TTI’s data is often used to justify spending money on new freeway capacity, since congestion sounds bad. TTI even promotes this approach. Tim Lomax, a co-author of the report, told the Post’s Ashley Halsey III, “You can do little things like stagger work hours, fix traffic-light timing and clear wrecks faster, but in the end, there’s a need for more capacity.”

This logical fallacy is very similar to that of per passenger-mile costs. Michael Lewyn has also discussed these issues in the past.

More urban planning mismeasurement

Apparently I’m not the only one thinking about urban mismeasurement, because the planning blogosphere is lighting up with examples. In addition to my critique of per passenger-mile measurements and the aforelinked critique of average density (and the great follow-up post here), I’ve noticed two other discussions about mismeasurement in urban planning:

1. A report funded by the Rockefeller Foundation criticizes the standard measures of congestion used by the Texas Transportation Institute’s “industry standard” Urban Mobility Report. It cites the Travel Time Index in particular, or the ratio of average peak travel times to non-peak travel times (it’s unclear but I believe they’re only talking about cars), as being particular pro-sprawl, in that it rewards cities where it’s hard to get around to begin with. While measuring total time spent in peak hour traffic, apparently dense metro areas like Chicago, Portland, and Sacramento have the lowest peak travel times, with Nashville holding up the rear with the longest average time spent in rush-hour traffic.

2. Angie Schmitt at Streetsblog gives an excellent example of both mismeasurement and environmentalism vs. density:

This summer I worked in the air quality division of the metropolitan planning agency in Northeast Ohio — known as NOACA. NOACA is the local agency responsible for disbursing federal highway dollars. To a certain extent, its actions are governed by a series of federal directives.

While I was at NOACA, we hired an “air quality planner” whose main responsibility was to perform an analysis mandated by the feds to measure the air quality impacts of every proposed road project.

The problem was, the analysis inevitably concluded — without fail! — that expanding a road would reduce air pollution.

That’s because the formula only accounted for short-term air quality impacts. Any given road project was likely to reduce congestion in the short-term and provide an immediate reduction in vehicle emissions. But the formula ignored long-term impacts of highway expansion — sprawl, longer commutes — which run directly counter to the cause of air quality. The formula simply wasn’t sophisticated or far-sighted enough to account for this type of effect.

Unfortunately it looks like these short-sighted air quality studies are to some extent the result of lawsuits by environmental groups.

Urban[ism] Legend: Traffic Planning

Mathieu Helie at Emergent Urbanism posted a link to a interesting game created at the University of Minnesota. Mathieu explains it better than I can:

The game begins in the Stalinian Central Bureau of Traffic Control, where a wrinkly old man pulls you out of your job at the mail room to come save the traffic control system. You are brought to a space command-like control room and put to work setting traffic lights to stop and go. Meanwhile frustrated drivers stuck in the gridlock you create blare their car horns to get your attention, and if their “frustration level” rises too high you fail out of the level. As the road network gets as complicated as four intersections on a square grid, the traffic becomes completely overwhelming and failure is inevitable, but the old man reassures you that they too have failed anyway.

OK, you’ve played the game? If not, don’t go further until you have.

Now that you’ve played the game and failed to control traffic, compare that top-down system with this amazing video a friend sent to me from Cambodia. You’ve gotta see this:

Man, I love this video! I must have watched it a couple dozen times. I keep expecting a crash, in what to me (only being familiar with top-down planned traffic systems) looks like complete chaos. Yet pedestrians, bikes, motorcycles, scooters, rickshaws, and cars all make it to their destinations safely, and probably quicker than in the system in the game above. It must be similar to how capitalism must seem chaotic to people who have always lived in planned economies.

Don’t mistake me as an advocate of a world without traffic signals. I am quite certain that some sort of traffic signaling would likely emerge from a free-market street system. But, my bigger point is that when information is dispersed widely among decision-makers without government monopoly, sustainable solutions emerge from the uncoerced behavior of individual agents over time.

Another article at Infrastructurist discusses the philosophical differences Dutch and American road designs, and gives an example:

A fascinating example is a major–20,000 cars a day!–intersection in the Dutch city of Drachten that used to look a lot a typical American intersection, with lots of bright paint and traffic signals and enormous signs telling you what and what not to do. Traffic planners tore that stuff out and went naked, just putting down a roundabout in the center. The sidewalks even disappeared as distinct structures. Everyone figured it out though. Fatalities at the intersection dropped markedly, as did travel times.

Also read Tom Vanderbilt: News for Traffic Signal Manufacturers

How Pricing Tolls Right Eliminates Congestion

Chris Bradford over at Austin Contrarian has been making some solid points in favor of congestion pricing. (here, here, here and here)  Chris’s core argument in favor of congestion tolling is that:

congestion pricing does more than relieve congestion.  Congestion pricing tells us when a road needs more capacity.  Additional capacity costs money, and drivers are willing to pay only so much for it.  That “so much” is exactly equal to the price they are willing to pay to avoid congestion.

The idea that toll profits send a signal to road operators to produce additional capacity is often neglected in discussions of the benefits of congestion pricing.  Without pricing, the only signal is the manifestation of congestion itself.  This is problematic, as the only solution is to build more roads when congestion is observed.  Actually if done right, years before congestion occurs with the help of foresight and luck on the part of transportation planners and agencies.  This problem feeds the dangerous new highway –> sprawl –> congestion –> highway expansion –> sprawl, etc., etc. positive feedback loop.  This feedback loop is quite a powerful mechanism that helps drive the unhealthy types of sprawl.

Chris is on the right track, but sets a sub-ideal objective (in my opinion) when he says:

The optimal congestion toll should be set just high enough to achieve free-flow (45 mph) traffic.

Since the goal should not only be to avoid congestion, but to get the highest number of commuters through the system as possible, I would restate that as:

The optimal congestion toll should be set at exactly the price that maximizes traffic flow.

As Chris said, “Congestion pricing is hard.”  Although it seems complicated, you might be shocked at how easy it is, in concept, to price roads optimally.  That’s because it’s somewhat counter-intuitive: flow is maximized if revenue is maximized.  (it’s approximately true, the variance is negligible enough that it’s not significant in practice.)

I’ll say it again, flow is maximized if revenue is maximized.  Don’t believe me?  OK, I’ll have to convince you rationally.

First, and most importantly, you have to understand some basic traffic engineering concepts.  (as a structural engineering student, I always assumed I’d never use anything I learned in the required traffic engineering course…)  The simplest explanation is using the fundamental diagram of traffic flow:

wikimedia

Looking at the third diagram, we see that traffic flow peaks (Qmax) at a particular density of traffic, D (cars/km) before reducing due to congestion.  This makes sense if you consider that in gridlock, despite a high density of cars on the road, not many cars are actually passing though a particular point.  Thus, a toll is optimal if it is priced to achieve maximum possible traffic flow, Qmax and maximum velocity Vc from the second diagram.  When a toll is introduced to a congested road, a certain number of drivers are incentivized away by the toll, which decreases traffic density (D) to a point where those who are left, travel more quickly, than if those drivers had simply added to congestion.

It is much simpler to understand the revenue concept:

Revenue ($/hour) = Toll ($/car) x Traffic Flow Q (car/hour)

Thus, the revenue is (approximately) maximized when maximum traffic flow is achieved.  (I say approximately because, the optimal toll is slightly higher because of the elasticity of toll pricing, but I think there there are more upsides than down of charging a tinsy bit more than for Qmax, even if it turns out to be significant)  One can maximize revenue by carefully selecting the optimal toll for the road at a given time.  We can derive with calculus, but I’ll steer us clear of calculus in this blog unless a reader really, really wants to challenge me on this.

So, we can conclude that traffic flow can only be maximized by carefully pricing the roads.  If the toll road operator charged a toll one dollar more than optimal, we can see that traffic density (D) will move to the left of the dashed line going through Qmax (into the free flow area), traffic flow would be drastically cut, and revenue would be reduced accordingly.  If the toll road operator charged a dollar less than optimal, traffic density (D) will move to the right of the dashed line into the congestion area, which will also reduce flow and revenue.  The trick is to be able to price the tolls correctly and dynamically, while maintaining price predictability to keep commuters loyal.

Next, I plan to discuss why the private sector is better equipped to get this tricky optimal pricing mechanism right.  I hope to follow that up with a discussion of the other economic, social and environmental benefits of congestion pricing, as well as dispelling some of the Urban[ism] Legends surrounding congestion pricing and private roadways.  (as time permits between feedings of the little guy)  Stay tuned…

20/20 Segment on Private Roads (& Some things to ponder while in traffic)

Some other things to ponder for the next time you are sitting on a congested highway…

When I talk to people about tolling roads, most people immediately reject the idea entirely.  I like to ask them to think about it next time they are in a traffic jam.  Hey, if you sit in traffic, you probably spend a lot of time thinking…  So, next time you are waiting for the car ahead of them to move, think of what dollar amount you would be willing to pay to avoid the traffic jam in order to get to your destination. 

Then, think of waiting in a long bread line, as if the only source of food were free government bread.  Obviously, the bread is underpriced.  How much would you be willing to pay for a loaf of bread to avoid the line?  Recall the price you were willing to pay to avoid traffic and ask yourself whether roads are priced correctly. 

Interestingly, almost all people are fully willing to pay for bread, a staple of life, while we tend to think of roads as “too important to leave to private companies.”  So from now on, think of a bread line every time you are sitting in traffic.

After a few commutes, you might be ready for some more thinking on the subject.  Once you’ve learned to recognize the socialism of the highways, think about how tolled roads might affect where you decide to live.  Would you live further away from your destination, and gladly pay for a congestion-free commute?  Or would you choose to live closer to work, to pay less in tolls? 

Now, keeping in mind that most highways are congestion-free when they are originally built, ponder how socialized roads effect living patterns.  Had roads been priced properly, would the outlying areas of your metropolitan area have developed as they did?

Parking Minimums Hamper Development and Affordability

Thanks to Dan and Benjamin for separately tipping me off to this link:
AP: Cities rethink wisdom of 50s-era parking standards

Like nearly all U.S. cities, D.C. has requirements for off-street parking. Whenever anything new is built — be it a single-family home, an apartment building, a store or a doctor’s office — a minimum number of parking spaces must be included. The spots at the curb don’t count: These must be in a garage, a surface lot or a driveway.

Parking requirements — known to planners as “parking minimums” — have been around since the 1950s. The theory is that if buildings don’t provide their own parking, too many drivers will try to park on neighborhood streets.

In practice, critics say, the requirements create an excess supply of parking, making it artificially cheap. That, the argument goes, encourages unnecessary driving and makes congestion worse. The standards also encourage people to build unsightly surface lots and garages instead of inviting storefronts and residential facades, they say. Walkers must dodge cars pulling in and out of driveways, and curb cuts eat up space that could otherwise be used for trees.

“Half the great buildings in America’s great cities would not be legal to build today under current land use codes,” said Jeff Speck, a planning consultant. “Every house on my block is illegal by current standards, particularly parking standards.”

Opponents also say the standards force developers to devote valuable land to parking, making housing more expensive.

“We’re forcing people to invest in spaces for automobiles rather than in spaces for people,” she said. “There’s no way to recover that use.”