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:
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…
As some of my previous comments may have already suggested, I’m not a big fan of “congestion pricing” (at least as it is usually discussed) — although I’m not an ardent opponent of it either. Here are four reservations I have about congestion pricing (as it is commonly discussed) — and also an overlooked “benefit” of congestion pricing.
Four reservations:
1) Discussions about congestion pricing are usually overly broad. There are various manifestations of the congestion pricing concept as it applies to vehicular roadways, and some are more (or less) relevant to urbanism (which, in my opinion, deals with REAL cities, rather than just any kind of non-agricultural settlement) than others, and some are more (or less) useful than others.
For instance, although bridge/tunnel tolls (one manifestation of congestion pricing concept) may spur the construction of more bridges/tunnels (good, in my opinion), it doesn’t seem to me that congestion pricing as it was proposed for NYC (or as has been implemented in London) leads to the construction of more lanes of local roadways – which might (e.g, Fifth and a half Avenue, Eighth and a half Avenue, etc.), or might not (e.g., a wider Fifth Avenue, a wider Eighth Avenue, etc.), be a good idea, irrespective of congestion pricing.
2) In terms CITY roadways (as opposed to inter-city highways, for instance), I don’t believe the purpose is necessarily to maximize traffic flow, etc.
In my opinion, the construction and maintenance of LOCAL streets is a legitimate function of government and should not necessarily be price allocated. (In the same way, perhaps, that the development and maintenance of an effective criminal justice system is a legitimate function of government and should not be price allocated.)
3) It seems to me that applicability and usefulness of many forms of congestion pricing to (genuine) cities is often exaggerated (or misplaced — see positive congestion pricing comment further below).
4) It seems to me that some manifestations of congestion pricing actually come very close to central economic planning and orthodox (central) urban planning. For instance, the idea that toll revenues should be used to fund mass transit seems to me to be more like central economic planning and orthodox (central) urban planning than market urbanism.
Here’s what I believe is an overlooked benefit to one type of congestion pricing, putting tolls on NYC bridges.
I think one of the greatest benefits of congestion pricing (at least as manifested by tolls on NYC bridges – tunnels already have tolls) is that by making urban roadways (e.g., Manhattan’s CBD roadways) better reflect the actual costs of building and maintaining them and access to them, congestion pricing is likely to spur the development and densification of alternative business districts in NYC (e.g. those in the Bronx, Queens, Brooklyn, etc.) — which currently, with subsidized roadways (e.g., free bridges) AND subsidized TRANSIT (E.G., SUBWAYS) TO “THE CITY” (I.E., MANHATTAN), are being “robbed” of their true (“MARKET” URBANISM) developmental potential.
As some of my previous comments may have already suggested, I’m not a big fan of “congestion pricing” (at least as it is usually discussed) — although I’m not an ardent opponent of it either. Here are four reservations I have about congestion pricing (as it is commonly discussed) — and also an overlooked “benefit” of congestion pricing.
Four reservations:
1) Discussions about congestion pricing are usually overly broad. There are various manifestations of the congestion pricing concept as it applies to vehicular roadways, and some are more (or less) relevant to urbanism (which, in my opinion, deals with REAL cities, rather than just any kind of non-agricultural settlement) than others, and some are more (or less) useful than others.
For instance, although bridge/tunnel tolls (one manifestation of congestion pricing concept) may spur the construction of more bridges/tunnels (good, in my opinion), it doesn’t seem to me that congestion pricing as it was proposed for NYC (or as has been implemented in London) leads to the construction of more lanes of local roadways – which might (e.g, Fifth and a half Avenue, Eighth and a half Avenue, etc.), or might not (e.g., a wider Fifth Avenue, a wider Eighth Avenue, etc.), be a good idea, irrespective of congestion pricing.
2) In terms CITY roadways (as opposed to inter-city highways, for instance), I don’t believe the purpose is necessarily to maximize traffic flow, etc.
In my opinion, the construction and maintenance of LOCAL streets is a legitimate function of government and should not necessarily be price allocated. (In the same way, perhaps, that the development and maintenance of an effective criminal justice system is a legitimate function of government and should not be price allocated.)
3) It seems to me that applicability and usefulness of many forms of congestion pricing to (genuine) cities is often exaggerated (or misplaced — see positive congestion pricing comment further below).
4) It seems to me that some manifestations of congestion pricing actually come very close to central economic planning and orthodox (central) urban planning. For instance, the idea that toll revenues should be used to fund mass transit seems to me to be more like central economic planning and orthodox (central) urban planning than market urbanism.
Here’s what I believe is an overlooked benefit to one type of congestion pricing, putting tolls on NYC bridges.
I think one of the greatest benefits of congestion pricing (at least as manifested by tolls on NYC bridges – tunnels already have tolls) is that by making urban roadways (e.g., Manhattan’s CBD roadways) better reflect the actual costs of building and maintaining them and access to them, congestion pricing is likely to spur the development and densification of alternative business districts in NYC (e.g. those in the Bronx, Queens, Brooklyn, etc.) — which currently, with subsidized roadways (e.g., free bridges) AND subsidized TRANSIT (E.G., SUBWAYS) TO “THE CITY” (I.E., MANHATTAN), are being “robbed” of their true (“MARKET” URBANISM) developmental potential.
CORRECTION:
The last phrase in my last sentence (paragraph lenth!) in my post above should have been the following:
— which currently, with subsidized roadways (e.g., free bridges) AND subsidized TRANSIT (E.G., SUBWAYS) TO “THE CITY” (I.E., MANHATTAN), are being “robbed” of their true (“MARKET” URBANISM) developmental potential.
CORRECTION:
The last phrase in my last sentence (paragraph lenth!) in my post above should have been the following:
— which currently, with subsidized roadways (e.g., free bridges) AND subsidized TRANSIT (E.G., SUBWAYS) TO “THE CITY” (I.E., MANHATTAN), are being “robbed” of their true (“MARKET” URBANISM) developmental potential.
I corrected per your note on your behalf.
I corrected per your note on your behalf.
Good explanation.
I posted a pseudo-response.
Should “instable” and “stable” be switched in your third chart?
Good explanation.
I posted a pseudo-response.
Should “instable” and “stable” be switched in your third chart?
2)
I think it has legitimacy only in the fact that to abandon the current publicly-run model abruptly would cause serious problems. Otherwise, I think Urbanists would likely be pleased by the privately-run solution. But, that’s my crazy opinion, and the burden is upon me to show urbanists why I support it.
4)
I agree. And I hope to address this in the next post on this subject, which involves private ownership.
2)
I think it has legitimacy only in the fact that to abandon the current publicly-run model abruptly would cause serious problems. Otherwise, I think Urbanists would likely be pleased by the privately-run solution. But, that’s my crazy opinion, and the burden is upon me to show urbanists why I support it.
4)
I agree. And I hope to address this in the next post on this subject, which involves private ownership.
Ah, yes! This is a fundamental concept of Market Urbanism which I have not adequately address in my published pieces, but have a draft that has been cooking for a while…
Ah, yes! This is a fundamental concept of Market Urbanism which I have not adequately address in my published pieces, but have a draft that has been cooking for a while…
Thanks Chris.
You may be right about the chart. Let me think about that. I think I’ll have to add an exception to the ‘flow is maximized if revenue is maximized’ assertion if flow is free flow under a un-tolled condition. (which only tells us the road doesn’t belong there in the first place….)
Thanks Chris.
You may be right about the chart. Let me think about that. I think I’ll have to add an exception to the ‘flow is maximized if revenue is maximized’ assertion if flow is free flow under a un-tolled condition. (which only tells us the road doesn’t belong there in the first place….)
Bad / Good Manifestations
of the Congestion Pricing Concept
as it Relates to Market Urbanism
(in my opinion)
Adam (the proprietor of Market Urbanism), I look forward to your more extended discussions of congestion pricing. But in the meantime, I thought I’d mention what I think are some bad and good examples of the congestion pricing concept as they relate to my idea of (market) urbanism. It seems to me that naturally occurring congestion pricing (as opposed to politically mandated congestion pricing) can actually happen pretty naturally — and that such “natural” congestion pricing (as opposed to self-conscious, politically achieved congestion pricing) is likely the most useful kind of congestion pricing as it relates to market urbanism. (It’s more a matter of removing government than a matter of imposing more government.)
EXAMPLE OF A BAD MANIFESTATION OF CONGESTION PRICING
Randall O’Toole’s (?) idea to create tolled “premium” (express) streets — like a tolled version of Grand Central Terminal’s “circumferential” roadway and its Murray Hill tunnel extension.
This, to me, is misguided manifestation of the congestion concept.
SOME EXAMPLES OF GOOD MANIFESTATIONs OF CONGESTION PRICING
— Market rate private parking garages (which, I assume, already exist — I’m a non-driver). (Although rates for parking on city streets should, I suppose, reflect the surrounding private rates, I don’t think a city should think of parking on city streets as a “profit center.” Making money from parking is not a true function of government, in my opinion, but an ancillary product.)
— Market rate bridge / tunnel / ferry tolls (especially if they were allowed to lead to the development of more bridges / tunnels / ferries).
I see modern day bridges, tunnels (e.g., like those accross the East and Hudson Rivers) as being essentially more “modern day” versions of the privately owned ferries that once operated on these “rivers” — and thus they are more like canals, railroads and turnpikes (toll roads on privately owned land) — i.e., supplemental “premium” modes of transportation, rather than like regular local city streets.
— Market rate AND relatively unregulated bus lines, taxis, etc. (It’s such a shame that NYC has actually gone in the opposite direction — taking over privately owned bus lines in Queens, etc.) By the way, I’m guessing, but I would think that market rate tolls for bridges / tunnels / ferries would be cheaper per person for buses (due to high carrying capacity) despite their weight (leading to more wear and tear).
— Higher fines for traffic violations in the CBD. I don’t drive, so I’m not sure about this, but I think the fines charged for various traffic parking violations are uniform city wide. It seems to me that they could be higher for the CBD as the problems created by such violations are greater (e.g., blocking the box) and they create greater expenses for cities (more police and traffic agent monitor intersections and enforce regulations). Higher fines, along with more regulations in the first place (due to higher congestion) and greater likelihood of motorists being fined are more natural forms (and more legitimate forms) of congestion pricing in my opinion.
Bad / Good Manifestations
of the Congestion Pricing Concept
as it Relates to Market Urbanism
(in my opinion)
Adam (the proprietor of Market Urbanism), I look forward to your more extended discussions of congestion pricing. But in the meantime, I thought I’d mention what I think are some bad and good examples of the congestion pricing concept as they relate to my idea of (market) urbanism. It seems to me that naturally occurring congestion pricing (as opposed to politically mandated congestion pricing) can actually happen pretty naturally — and that such “natural” congestion pricing (as opposed to self-conscious, politically achieved congestion pricing) is likely the most useful kind of congestion pricing as it relates to market urbanism. (It’s more a matter of removing government than a matter of imposing more government.)
EXAMPLE OF A BAD MANIFESTATION OF CONGESTION PRICING
Randall O’Toole’s (?) idea to create tolled “premium” (express) streets — like a tolled version of Grand Central Terminal’s “circumferential” roadway and its Murray Hill tunnel extension.
This, to me, is misguided manifestation of the congestion concept.
SOME EXAMPLES OF GOOD MANIFESTATIONs OF CONGESTION PRICING
— Market rate private parking garages (which, I assume, already exist — I’m a non-driver). (Although rates for parking on city streets should, I suppose, reflect the surrounding private rates, I don’t think a city should think of parking on city streets as a “profit center.” Making money from parking is not a true function of government, in my opinion, but an ancillary product.)
— Market rate bridge / tunnel / ferry tolls (especially if they were allowed to lead to the development of more bridges / tunnels / ferries).
I see modern day bridges, tunnels (e.g., like those accross the East and Hudson Rivers) as being essentially more “modern day” versions of the privately owned ferries that once operated on these “rivers” — and thus they are more like canals, railroads and turnpikes (toll roads on privately owned land) — i.e., supplemental “premium” modes of transportation, rather than like regular local city streets.
— Market rate AND relatively unregulated bus lines, taxis, etc. (It’s such a shame that NYC has actually gone in the opposite direction — taking over privately owned bus lines in Queens, etc.) By the way, I’m guessing, but I would think that market rate tolls for bridges / tunnels / ferries would be cheaper per person for buses (due to high carrying capacity) despite their weight (leading to more wear and tear).
— Higher fines for traffic violations in the CBD. I don’t drive, so I’m not sure about this, but I think the fines charged for various traffic parking violations are uniform city wide. It seems to me that they could be higher for the CBD as the problems created by such violations are greater (e.g., blocking the box) and they create greater expenses for cities (more police and traffic agent monitor intersections and enforce regulations). Higher fines, along with more regulations in the first place (due to higher congestion) and greater likelihood of motorists being fined are more natural forms (and more legitimate forms) of congestion pricing in my opinion.
Sorry, I’m not convinced!
How can you be so sure of an elastic demand? For (an exaggerated)example, let’s say that a toll is $10 and the veh/hr = 1500. Now, suppose that the toll is raised to $50 and the new veh/hr is 1000.
Old revenue = $10 x 1500 = $15,000
New revenue = $50 x 1000 = $50,000
Revenue way up, flow way down.
Of course, I am simplifying — and ignoring the difference between short- and long-term elasticities, competition, and the ability to build new highways.
In a highway market that is not controlled by a monopoly government and with land regulations that prohibit double-decking (and triple-decking?) highways, I would be much more inclined to agree with your theory.
Incidentally, even a monopoly government would try price discrimination to *deliberately* restrict flow to increase revenue. Airlines do it all the time by pulling out pulling out seats in the front of the plane and calling it “first class”. Similarly, railroads (and the Paris Metro at one time) have premium service. In Paris, the first-class cars were identical to the other cars, except they cost more to ride in — hence, they were emptier.
Maybe a private highway operator would have flow-reduced lanes for a premium price — assuming people would be willing to pay much more to drive at 65 mph (or 100 mph?) than at flow-maximzing “coach” speeds of 45 mph…
Sorry, I’m not convinced!
How can you be so sure of an elastic demand? For (an exaggerated)example, let’s say that a toll is $10 and the veh/hr = 1500. Now, suppose that the toll is raised to $50 and the new veh/hr is 1000.
Old revenue = $10 x 1500 = $15,000
New revenue = $50 x 1000 = $50,000
Revenue way up, flow way down.
Of course, I am simplifying — and ignoring the difference between short- and long-term elasticities, competition, and the ability to build new highways.
In a highway market that is not controlled by a monopoly government and with land regulations that prohibit double-decking (and triple-decking?) highways, I would be much more inclined to agree with your theory.
Incidentally, even a monopoly government would try price discrimination to *deliberately* restrict flow to increase revenue. Airlines do it all the time by pulling out pulling out seats in the front of the plane and calling it “first class”. Similarly, railroads (and the Paris Metro at one time) have premium service. In Paris, the first-class cars were identical to the other cars, except they cost more to ride in — hence, they were emptier.
Maybe a private highway operator would have flow-reduced lanes for a premium price — assuming people would be willing to pay much more to drive at 65 mph (or 100 mph?) than at flow-maximzing “coach” speeds of 45 mph…
Bill,
Thanks for calling me out on that. (Chris is apropriately skeptical, too) I guess it was a stretch for me to brush aside elasticity, and expect people to believe me without showing why the effects are not very consequential to critical flow, except under conditions of extreme elasticity. I was hoping to avoid that highly complex aspect, but I’m up to the challenge of addressing it.
As you correctly state, the assumption also presumes some rationality in the design of the current monopolistic network.
So, I will address the elasticity issue in the next few days before moving forward on this topic…
Bill,
Thanks for calling me out on that. (Chris is apropriately skeptical, too) I guess it was a stretch for me to brush aside elasticity, and expect people to believe me without showing why the effects are not very consequential to critical flow, except under conditions of extreme elasticity. I was hoping to avoid that highly complex aspect, but I’m up to the challenge of addressing it.
As you correctly state, the assumption also presumes some rationality in the design of the current monopolistic network.
So, I will address the elasticity issue in the next few days before moving forward on this topic…
Test
Hi, Adam!
Last night and tonight I checked this thread from a number of different computers at NYU’s library (using a few different PCs and Macs). These are different from the computer I submitted three comments from on Thursday afternoon (a PC). On the NYU computers none of the comments (including three of mine, three [?] of yours, and one from a third party) are visible — although they were eventually visible, after about a half hour or so, on the PC that I used on Thursday afternoon.
Otherwise your blog site seems as usual (although the list of recent commentors on the right side of the page also does not reflect any of the recent comments, which I suppose is to be expected).
I’m sending this comment (Fri., 4/24/09, 8:04 p.m.) from an NYU computer (PC) to see what happens.
Test
Hi, Adam!
Last night and tonight I checked this thread from a number of different computers at NYU’s library (using a few different PCs and Macs). These are different from the computer I submitted three comments from on Thursday afternoon (a PC). On the NYU computers none of the comments (including three of mine, three [?] of yours, and one from a third party) are visible — although they were eventually visible, after about a half hour or so, on the PC that I used on Thursday afternoon.
Otherwise your blog site seems as usual (although the list of recent commentors on the right side of the page also does not reflect any of the recent comments, which I suppose is to be expected).
I’m sending this comment (Fri., 4/24/09, 8:04 p.m.) from an NYU computer (PC) to see what happens.
Some fascinating results!
Once I pushed the “Add comment” button all previous 11 comments were instantly visible. So I suppose it was a problem with NYU’s computers?
Some fascinating results!
Once I pushed the “Add comment” button all previous 11 comments were instantly visible. So I suppose it was a problem with NYU’s computers?
The “elasticity of demand” for urban highways is a minefield, because what drives demand in most cases is development. The suburbs are littered with subdivisions whose only reason for existing is a free commute to a workplace. If you take away the free commute, the subdivisions become overnight worthless.
Demand will be elastic as far as the suburbs’ ability to redevelop into autonomous urban centers that attract traffic in balance with the amount they send out. In American cities we still have this idea of a “central business district”, that all the business should be done in the middle of the area and the homes should be on the outskirts. In Europe it’s the other way around, new businesses are built in the suburbs while the center is valued for its residential amenities.
That may be why there are more toll highways in Europe.
The “elasticity of demand” for urban highways is a minefield, because what drives demand in most cases is development. The suburbs are littered with subdivisions whose only reason for existing is a free commute to a workplace. If you take away the free commute, the subdivisions become overnight worthless.
Demand will be elastic as far as the suburbs’ ability to redevelop into autonomous urban centers that attract traffic in balance with the amount they send out. In American cities we still have this idea of a “central business district”, that all the business should be done in the middle of the area and the homes should be on the outskirts. In Europe it’s the other way around, new businesses are built in the suburbs while the center is valued for its residential amenities.
That may be why there are more toll highways in Europe.
Thanks for the heads up – something was acting weird a couple weeks ago. Let me know if it happens again.
Thanks for the heads up – something was acting weird a couple weeks ago. Let me know if it happens again.