1. Externalities from Autos
Chapter 10
Externalities from Autos
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Introduction Axiom 3: Externalities cause inefficiency
Solution: Internalize the externalities with pricing (taxes)
Automobile externalities: congestion, environmental damage, collisions
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6. Congestion Nationwide cost of congestion Modeling 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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7. Column D: Increase in time per vehicle
Column C: Private trip cost = $2 monetary cost + $0.10 per minute • trip time
Column B: Trip time increases with volume as drivers slow for safe distances
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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9. 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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10. 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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13. 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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14. 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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15. 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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16. 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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17. 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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18. 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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19. Road Capacity Decision
How wide a road to build?
Widen if Congestion Tax Revenue > Road Cost
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21. Step 1: Two-Lane Road
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22. Step 2: Four-Lane Road
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24. 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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25. 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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26. 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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28. 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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29. 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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30. 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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32. 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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34. 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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