externalities from autos chapter 10 mcgraw-hill/irwin copyright © 2012 by the mcgraw-hill...
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Externalities from Autos
Chapter 10
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction• Axiom 3: Externalities cause inefficiency
– Solution: Internalize the externalities with pricing (taxes)
– Automobile externalities: congestion, environmental damage, collisions
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Congestion• Nationwide cost of congestion
– Typical commuter spent 47 hours per year in traffic
– Extra gasoline and diesel fuel = $5 billion
– Sum of time and fuel cost = $63 billion (5 times amount in 1982)
• Modeling congestion– Commute distance = 10 miles
– Monetary Cost = $0.20 per mile
– Time cost = opportunity cost of $0.10 per mile
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• Column B: Trip time increases with volume as drivers slow for safe distances• Column C: Private trip cost = $2 monetary cost + $0.10 per minute • trip time• Column D: Increase in time per vehicle• Column E: Increase in total travel time = D • vehicles• Column F: External trip cost = E • $0.10• Column G: Social trip cost = C + F
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Benefits and Costs of the Congestion Tax
• Benefits: Decrease in trip time from reduced volume; Reduction of other taxes
• Cost: Tax for drivers; Lost consumer surplus for former drivers
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Congestion Taxes and Urban Growth
• Will the imposition of a congestion tax cause the city to grow or shrink?
• Congestion tax improves efficiency of urban economy
• Consider two-city region with fixed population
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Practicalities of Congestion Taxes
• Estimates of Congestion Taxes– San Francisco: $0.03 to $0.05 (off peak); $0.17 to $0.65 (peak)
– Minneapolis: average of $0.09; up to $0.21 on most congested routes
– Los Angeles: $0.15 average for peak
• Implementing the Congestion Tax– Vehicle identification system (VIS) allows tracking and billing
– Singapore: $2 for central zone; Electronic pricing for variable charges
– Toronto: Fees on Express Toll Road depend on time of day
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A Congestion Tax Reduces Traffic Volume by
• 1. Modal substitution: switch to carpool, transit
• 2. Time of travel: switch to off-peak travel
• 3. Travel route: switch to less congested route
• 4. Location choices: change residence or workplace, cutting travel distance
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HOV and HOT Lanes• HOV: high-occupancy vehicle lane for carpools
and buses• HOT: high occupancy or toll; pay to use HOV lanes– California HOT lanes: Toll varies with traffic volume
– Responses• Modal substitution: switch to transit, carpool
• Time of travel: Switch to off-peak travel
• Change routes
• Combine trips
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Alternative to a Congestion Tax: Gasoline Tax
• Encourages modal substitution (1) and location choices (4)
• Does not affect time of travel (2) or route (3)
• Gasoline tax applies to driving on uncongested road
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Alternative to Congestion Tax: Transit Subsidy
• Idea is to match underpricing of car travel with underpricing of mass transit
• Encourages modal substitution (1)• Does not affect time of travel (2), route (3),
location choice (4)• Problems– Inelastic demand for mass transit; zero price increases
ridership by 1/3
– Only a fraction of new riders are diverted auto drivers
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Alternative to a Congestion Tax: Eliminate Parking Subsidy
• Subsidies cut drive-alone cost and increase number of cars by 19% (Shoup)
• Eliminate subsidies shifts auto demand to left, decreasing volume
• Evidence of responsiveness
– Ottawa pricing decreased drivers by 23%
– LA pricing decreased solo drivers by 44%
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Road Capacity Decision
• How wide a road to build?• Widen if Congestion Tax Revenue > Road Cost
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Step 1: Two-Lane Road
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Step 2: Four-Lane Road
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Capacity Expansion and Latent Demand
• Wider road has lower time cost and larger quantity demanded
• Figure 10-6: Double width decreases trip cost from $3.60 (k) to $3.00 (f)
• When capacity doubles, why not go from point k to point m?
• Law of demand: Increase in volume partly offsets cost savings from wider road
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Who Pays for Roads?
• Use fees for autos and trucks: gas, oil, auto parts
• Revenue from fees no longer cover cost of roads and highways
• Urban road users come closer to covering costs
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Autos and Air Pollution• Pollution and Greenhouse Gases
– Pollutants: VOC, CO, NOx, SO2 generate smog and particulates
– Transport responsible for 2/3 of CO, 1/2 of VOC, 2/5 of NOx
– Poor air quality exacerbates respiratory problems & causes premature death
– Greenhouse gases from automobiles
• Internalizing pollution externalities
– Economic approach: Tax = marginal external cost
– Monitoring device allows direct charge for emissions
– One-time pollution tax depends on expected emissions, but not mileage
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Greenhouse Gases and a Carbon Tax
• Carbon tax: External cost per ton of carbon = $25 to $100
• Carbon tax of $50 means gasoline tax = $0.13 per gallon
• Extend Figure 10-7: Shift supply curve upward by $0.13
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Motor Vehicle Accidents• Cost of MV Accidents– Annual cost in US: 3.1 million injuries, 40,000 deaths,
$300 billion
– External cost of collisions = 4.4 cents per mile (vs. 10 cents per mile for fuel)
• Accidents and Congestion– Parry: $5 billion per year lost from accident delays
– Quick response policies: cruising tow trucks, loop detectors, helicopters
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Vehicle Safety Policies: Bikers Beware
• Vehicle Safety Act of 1966: Mandated safety features
• Seat-belt and other safety laws didn’t have expected effect– Small reduction in death rates
– Higher collision rates
– Increased injury and death rates for pedestrians and bicyclists
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Accident Costs and VMT Tax
• Impose per-mile tax = Marginal external cost from accidents
• Figure 10-9: Efficiency Gains from VMT Tax
• Perfectly Differentiated: Gain = 0.38 cents per mile driven = $9.4 billion per yea
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Automobiles and Poverty• Recall spatial mismatch discussion from neighborhood
chapter
• Access to a car– Urban low-income families: 27% don’t own a car
– Blacks in central cities: 45% don’t have access to a car
• Importance of a car– Switch from mass transit saves 19 minutes each day and expands
search area
– Car owners are more likely to complete job training program and get a job
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