1. Chapter 11 Autos and Highways Urban Transportation

2. Three basic problems caused by autos Congestion –What is the optimum level of congestion Pollution –Alternative control policies: pollution taxes & gas taxes Highway accidents –Can government do anything

3. Modal Choice of Transportation

4. What is the Optimal Level of Congestion Distance of highway is 10 miles Monetary travel costs are 20¢ per mile Opportunity cost is 10¢ per minute Demand for travel: The marginal willingness to pay of the marginal traveler

5. Table 11-1 OSullivan Volume Trip Time ΔT per Driver ΔTotal Travel Time Externa l Trip Cost Private Trip Cost Social Trip Cost Marginal Benefit 20012.000.0000.00 3.20 31.10 40012.000.0000.00 3.20 27.44 60012.800.0074.200.423.283.7023.78 80014.800.01310.401.043.484.5220.12 100018.000.01919.001.903.805.7016.46 120022.400.02530.003.004.247.2412.80 140028.000.03143.404.344.809.14 160034.800.03759.205.925.4811.405.48 180042.800.04377.407.746.2814.021.82 200052.000.04998.009.807.2017.00

6. Congestion Tax A tax that equals the difference between social trip cost and the private trip cost, will make both costs equal This tax will reduce the number of trips to the optimum.

7. Benefits and Costs from a Congestion tax People who continue using the highway pay the tax, but have lower travel costs People who stop using the highway do not pay the tax, but forgo the benefits from using the highway Generates revenue

8. Efficient Congestion Cast Taxes may vary between peak and off-peak travel

9. Responses to Congestion Taxes Modal Substitution Time of Travel Travel Route Location Choices

10. Alternative to Congestion Taxes Gasoline Tax –Increases costs of all automobile travel –Does not encourage changes in time of travel Parking Tax –Charge different fares parking fares for cars that arrive/leave at different times –Only affects peak period drivers –Does not change travel route or location choices –Only affects cars who park in congested areas Congestion Zone Taxes

11. What happens if we increase capacity? Traffic Volume $ Demand Private Cost Wide Highway Private Cost Narrow Highway VoVo VwVw

12. Subsidies for Transit a) Free Market (B,R) b) Subsidy Transit (S,C) d) Congestion Tax (A,Q); D Sub $ A Social Trip Cost Private Trip Cost $ T Private Cost under Subsidy Marginal Social Cost D Tax D D A B C R S Q

13. Transit Subsidy (Cont) A subsidy on transit is less efficient than a congestion tax, because it under prices transit raising ridership above its optimum level

14. Highway Pricing and Traffic Volume in the Long Run Government can design a policy with the optimal road volume and the optimal road width? –Derive Average Total Cost Curves –Derive Long Run Average and Marginal Cost Curves (CRS) –Pick the optimum traffic volume and road width –Pick the congestion tax that generates the optimal volume

15. Who pays for the expanded capacity?

16. Average Total Cost Curves Define ATC=ARC+PTC There will be an ATC for each size of freeway U-Shaped because of 2 effects: –Cost Effect –Congestion Effect

17. Long-Run ATC Curve For a given volume of traffic, what is the most efficient average total cost? LRAC envelops the minimum of ATC curves Long Run Marginal Cost: Long Run Social Cost of an additional driver

18. Optimum Volume and Road Width MC=MB Congestion Tax encourages the drivers to drive a volume of V** Recall: –ARC=ATC-PTC –Congestion Tax=STC-PTC

19. Congestion Tax covers the price of the road! Congestion Tax=Average Road Cost iff Average Total Cost = Social Total Cost Social Trip Cost is the short run marginal cost of one additional driver Revenue Sends a signal: –Increase highway size if revenue>ARC

20. Autos and Air Pollution Autos and trucks generate air pollution Externality Problem: Drivers base their decisions to drive or not on the marginal private cost of driving which is less than the marginal social cost of driving

21. Congestion Tax and the Monocentric City? u $ RoRo R1R1

22. Pollution Externalities Pollution externalities causes: – People drive cars that generate a lot of pollution –People drive too many miles Solutions: People should pay for the pollution they generate How to estimate the cost?

23. What can be done? One time pollution tax on automobiles that equals the pollution the car generates in lifetime Use a gasoline tax –Affects all cars, not only the ones who pollute –Reduces pollution be reducing miles driven, not by encouraging people to have cleaner cars

24. Auto Safety Auto safety leading cause pf death among 1-24 years old population 42,000 deaths Safety Regulations: Air bags, seatbelts, etc… –Theory of risk compensation Optimum Speed

25. The value of a life Ashenfelter and Greenstone (2002) Use state variations on speed limits to valuate a life. In 1987 21 states moved rural interstate speed limit from 55 mph to 65 mph Increase of speeds of 3.5% associated with 35% increase in fatality rates 125,000 hours saved per lost life Each fatality is valuated in 1.54 million dollars