Delivery vehicles might come soon. Corporate fleet vehicles. And the big jump, of course, will be when they’re available as private vehicles. It’s possible that the costs are high enough that won’t happen, or won’t happen for several decades. Let’s assume it does. What comes next?

Preferences

1. Autonomous vehicles will vastly lower the opportunity cost of time spent driving.
   • Once the transition to an all or almost-all AV automobile fleet is complete, we will be able to redesign cars to be much more comfortable. In the ideal case, they’ll be like 1^st class airplane berths or better. Being “stuck in traffic” will just mean “I’m in my mobile office” or “I’m binge-watching the 2040s Lord of the Rings remakes.”
   • Imagine having a self-driving Winnebago – for the cost of electricity, we’ll be able to take vacations anywhere on the continent without stopping work. Imagine how I’m going to spend my summers when I can shift from Quebec to Minneapolis to Moab to San Diego every day or two!!!
2. Highways will be OK to great, because AVs will cut down on vehicle spacing at high speeds.
3. Downtown streets will be a disaster. There isn’t much vehicle spacing to reduce. And AVs will be more conservative about “creative”
4. But some people (and goods) will still have places to be. If they’re stuck in traffic with all the mobile-office-workers, mobile-movie-enjoyers, and mobile nappers, they’re going to incur just as much cost as people do today when they’re late.
5. This is a recipe for extremely high congestion welfare costs. In cities, for sure. But also in desirable areas during peak seasons. Imagine the roads into the Rockies in summer if Denver office workers can get their work done while driving to their evening picnic spot
   • In case you’re tempted to think I’m exaggerating, remember that all our experience with congestion comes from people whose eyes, hands, and feet must remain attuned to the traffic, and whose vehicles are designed to keep them in safe seats.
   • AVs will enable higher highway capacity, where following distance is a major constraint. But the gains at intersections will be much smaller, and AVs will be programmed to be more cautious than human drivers on streets with pedestrians, etc. At least some places, likely including most downtown streets, will be much more congested.

Policy

1. Obviously, the solution to this problem is road pricing, which can be quite sophisticated with AV. The traditional privacy concerns about segment-specific tolling are in the rearview mirror (there’s a metaphor with a terminal diagnosis) at the point that AV tech is in control.
2. The default attitude toward regulation has been to treat parked cars with more skepticism than moving cars. That made sense when a moving car implied a driver paying a substantial opportunity cost to occupy public space. Solve for the equilibrium if downtown streets are free but downtown parking is market priced.
3. The transition from driven vehicles to AVs deserves consideration but should be secondary to thinking about post-transition equilibrium.

Politics

1. Even when pricing has large, obvious benefits, voters resist it. We still can’t toll urban interstates even though 100% of experts think it’s a good idea in at least some cases. NYC’s kinda-sorta congestion pricing highlights how the bad politics of pricing intersect with the difficult technicalities of dynamically pricing traditional cars.
   • Congestion pricing for all cars, now, would be great, but it’s not realistic.
   • And many downtown streets that are OK now will collapse under the increase in driving that AVs will bring.
2. Voters will resist tolling AVs after they have AVs.
3. So the time to begin tolling AVs is now, when they have a handful of lobbyists but no grassroots.
4. The initial price can be small – the key is to institute the architecture and expectation that AVs pay to use congested roads.

Agenda

This is research that I’m thinking about with my more tech-savvy colleagues. It’s not urgent – mass ownership of AVs would take a decade or more even if they were available for individual ownership tomorrow. But it’s important.

Researchers need to model downtown traffic with AVs. We need to think about the correct scales, in time and geography, for dynamic pricing. And we need to convince policymakers that automated vehicles should pay to use congested roads.

The post Agenda: Dynamic congestion pricing for autonomous vehicles appeared first on Market Urbanism.

Surprise!!  I’ve had the intent to wrap-up the Rothbard The Urbanist series for a long time, and it’s been sitting on my todo list for over 6 years.

I want to thank Jeffrey Tucker, then at mises.org, and now at FEE.org and liberty.me for enthusiastically granting permission to reprint excerpts from For A New Liberty.  Murray Rothbard’s 1973 classic can be downloaded free from Mises.org as pdf, and audio book read by Jeff Riggenbach.  This chapter is also discussed by Bryan Caplan as part of an econlog book club series on For A New Liberty.

It’s been a while, so you may want to catch up on the first six posts:

Rothbard the Urbanist Part 1: Public Education’s Role in Sprawl and Exclusion

Rothbard the Urbanist Part 2: Safe Streets

Rothbard the Urbanist Part 3: Prevention of Blockades

Rothbard the Urbanist Part 4: Policing

Rothbard the Urbanist Part 5: Diversity and Discrimination

Rothbard The Urbanist Part 6: Traffic Control

We pick up in the heart of chapter 11: “The Public Sector, II: Streets and Roads” to expand on a subject core to Market Urbanism: the pricing of highways, and the consequences of a system where politics, special interests, and top-down planning have incarnated a dysfunctional system severely disconnected with bottom-up pricing signals necessary to be sustainable.  Tragically, Rothbard’s insights on these subjects have been mostly neglected for over 30 years, while apologists for sprawl and automobile dominance have nearly monopolized the conversation among free-market advocates.

We begin the section with Professor Rothbard’s acknowledgement of what sprawl apologists turn a blind eye to, yet urbanists on the left are keenly aware.  Government intervention, fueled by special interests and old-fashioned progressive ideology, massively subsidized the highway system and crowded-out otherwise viable railroads.  As a result, we have an overbuilt highway system, urban neighborhoods were eviscerated, suburbs spread far-and-wide, privately built transit could not compete, and congestion clogs many socialized highways.

Pricing Streets and Roads

If, in contrast, we examine the performance of governmental streets and highways in America, it is difficult to see how private ownership could pile up a more inefficient or irrational record. It is now widely recognized, for example, that federal and state governments, spurred by the lobbying of automobile companies, oil companies, tire companies, and construction contractors and unions, have indulged in a vast overexpansion of highways. The highways grant gross subsidies to the users and have played the major role in killing railroads as a viable enterprise. Thus, trucks can operate on a right-of-way constructed and maintained by the taxpayer, while railroads had to build and maintain their own trackage. Furthermore, the subsidized highway and road programs led to an overexpansion of automobile-using suburbs, the coerced bulldozing of countless homes and businesses, and an artificial burdening of the central cities. The cost to the taxpayer and to the economy has been enormous. [p. 209]

Rothbard cites Columbia University economist, William Vickrey on the extent of subsidies to the automobile.  23 years later, Vickrey won the 1996 Nobel Prize in Economics days before passing away, and is known as the “father” of congestion pricing.

Particularly subsidized has been the urban auto-using commuter, and it is precisely in the cities where traffic congestion has burgeoned along with this subsidy to overaccumulation of their traffic. Professor William Vickrey of Columbia University has estimated that urban expressways have been built at a cost of from 6 cents to 27 cents per vehicle-mile, while users pay in gasoline and other auto taxes only about 1 cent per vehicle-mile. The general taxpayer rather than the motorist pays for maintenance of urban streets. Furthermore, the gasoline tax is paid per mile regardless of the particular street or highway being used, and regardless of the time of day of the ride. Hence, when highways are financed from the general gasoline tax fund, the users of the low-cost rural highways are being taxed in order to subsidize the users of the far higher-cost urban expressways. Rural highways typically cost only 2 cents per vehicle-mile to build and maintain.⁴

A transportation system without a rational pricing system causes dysfunction in many forms – most visibly, congestion. I first realized this while idling in traffic driving home from my first micro-economics class, which had just opened my eyes to queuing which results from supply shortages induced by mispricing.  If roads were tolled at a profit maximizing price, especially with today’s technologies that tremendously reduce transaction costs, congestion could be effectively eliminated and inform operators where to increase capacity or build new roads.  Instead, the government continuously attempts to solve congestion by buildings more roads without the benefit of price signals. Rothbard calls it, “like a dog chasing a mechanical rabbit,” and references a Washington Post article describing the unintended consequences of Washington’s Capital Beltway construction: more (not less) congestion, sprawl, and hollowing-out of jobs and residents from the central city.  I tried searching Washington Post archives for the 1971 article, “U.S. Highway System: Where to Now?,” by Hank Burchard, but was unsuccessful. Please let me know if you find it.

In addition, the gasoline tax is scarcely a rational pricing system for the use of the roads, and no private firms would ever price the use of roads in that way. Private business prices its goods and services to “clear the market,” so that supply equals demand, and there are neither shortages nor goods going unsold. The fact that gasoline taxes are paid per mile regardless of the road means that the more highly demanded urban streets and highways are facing a situation where the price charged is far below the free-market price. The result is enormous and aggravated traffic congestion on the heavily traveled streets and roads, especially in rush hours, and a virtually unused network of roads in rural areas. A rational pricing system would at the same time maximize profits for road owners and always provide clear streets free of congestion. In the current system, the government holds the price to users of congested roads extremely low and far below the free-market price; the result is a chronic shortage of road space reflected in traffic congestion. The government has invariably tried to meet this growing problem not by rational pricing but by building still more roads, socking the taxpayer for yet greater subsidies to drivers, and thereby making the shortage still worse. Frantically increasing the supply while holding the price of use far below the market simply leads to chronic and aggravated congestion.⁵ It is like a dog chasing a mechanical rabbit. Thus, the Washington Post has traced the impact of the federal highway program in the nation’s capital: [p. 210]

Washington’s Capital Beltway was one of the first major links in the system to be completed. When the last section was opened in the summer of 1964, it was hailed as one of the finest highways ever built.

It was expected to (a) relieve traffic congestion in downtown Washington by providing a bypass for north-south traffic and (b) knit together the suburban counties and cities ringing the capital.

What the Beltway actually became was (a) a commuter highway and local traffic circulator and (b) the cause of an enormous building boom that accelerated the flight of the white and the affluent from the central city.

Instead of relieving traffic congestion, the Beltway has increased it. Along with I-95, 70-S, and I-66, it has made it possible for commuters to move farther and farther from their downtown jobs.

It has also led to relocation of government agencies and retail and service firms from downtown to the suburbs, putting the jobs they create out of reach of many inner city dwellers.⁶

What would a rational pricing system, a system instituted by private road owners, look like? In the first place, highways would charge tolls, especially at such convenient entrances to cities as bridges and tunnels, but not as is charged now. For example, toll charges would be much higher at rush-hour and other peak-hour traffic (e.g., Sundays in the summer) than in off-hours. In a free market, the greater demand at peak hours would lead to higher toll charges, until congestion would be eliminated and the flow of traffic steady. But people have to go to work, the reader will ask? Surely, but they don’t have to go in their own cars. Some commuters will give up altogether and move back to the city; others will go in car pools; still others will ride in express [p. 211] busses or trains. In this way, use of the roads at peak hours would be restricted to those most willing to pay the market-clearing price for their use. Others, too, will endeavor to shift their times of work so as to come in and leave at staggered hours. Weekenders would also drive less or stagger their hours. Finally, the higher profits to be earned from, say, bridges and tunnels, will lead private firms to build more of them. Road building will be governed not by the clamor of pressure groups and users for subsidies, but by the efficient demand and cost calculations of the marketplace.

In 1973, it would have been easier to argue against Rothbard that widespread tolling was impractical due to the transaction costs involved with tolling.  43 years later, technologies that allow highway operators to charge passengers without slowing traffic are abundant.  The only obstacle to tolling highways, bridges, and tunnels is politics.  Unfortunately, drivers are voters, and they like their underpriced highways.  Can’t we just make Econ 101 a prerequisite for earning a driver’s license?

If highways were priced right, it may become feasible for governments to sell-off the assets.  But as we’ve seen in many pseudo-privatization deals, it’s hard to be optimistic it would be a true privatization where the government gets out of the highway business altogether

In the next instalment, we’ll be able to apply new technologies to Rothbard’s insights of pricing local streets, a less intuitive notion even today.  But as we’ll see, it’s actually not a new idea.

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4. From an unpublished study by William Vickrey, “Transit Fare Increases a Costly Revenue.”

5. For similar results of irrational pricing of runway service by government-owned airports, see Ross D. Eckert, Airports And Congestion (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1972).

6. Hank Burchard, “U.S. Highway System: Where to Now?,” Washington Post (November 29, 1971). Or, as John Dyckman puts it: “in motoring facilities . . . additional accommodation creates additional traffic. The opening of a freeway designed to meet existing demand may eventually increase that demand until congestion on the freeway increases the travel time to what it was before the freeway existed.” John W. Dyckman, “Transportation in Cities,” in A. Schreiber, P. Gatons, and R. Clemmer, eds., Economics of Urban Problems; Selected Readings (Boston: Houghton Mifflin, 1971), p. 143. For an excellent analysis of how increased supply cannot end congestion when pricing is set far below market price, see Charles O. Meiburg, “An Economic Analysis of Highway Services,”Quarterly Journal of Economics (November 1963), pp. 648-56.

The post Rothbard The Urbanist Part 7: Pricing Highways appeared first on Market Urbanism.

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

The post Urban[ism] Legend: Transportation is a Public Good appeared first on Market Urbanism.

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 post Links appeared first on Market Urbanism.

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.

The post The Texas Transportation Institute’s funny definition of “congestion” appeared first on Market Urbanism.

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.

The post More urban planning mismeasurement appeared first on Market Urbanism.

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

The post Urban[ism] Legend: Traffic Planning appeared first on Market Urbanism.

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…

The post How Pricing Tolls Right Eliminates Congestion appeared first on Market Urbanism.