Five Percent: Conserve Energy

Climate Change Is Important: Energy Conservation is the First Step

April 15, 2008

Congestion Pricing: Simplicity is the Key

Category: Economics,Policy,Save Fuel,Technology,Transportation – Tom Harrison – 9:22 pm

New York City recently failed to pass a law that would change the price of tolls based on the time of day—higher prices during busy times and lower prices off-peak.

It’s not hard to see why this well-intentioned law didn’t pass. Take a look at this article (actually a “Freakonomics” Blog Post) in the New York Times. Are your eyes glazing over? Mine were.

The thing is, this is not only something near and dear to my environmental leanings, it is the main topic that I wrote my bachelor’s thesis on in college: change the price of something based on predictable patterns of use. So it’s possible that I am slightly more willing to understand this stuff than most people.

But my eyes glazed over anyway.

Why is it that we need to make everything so complicated? Why did the proposed law have exceptions for taxis and increased parking meter rates and all sorts of other links that made it hard to swallow? And the price changed depending on whether you used E-Z Pass.

Maybe the answer is simply that adding those items made the law hard to swallow (thus giving the people who didn’t want the law to pass an easy out).

Changing the price of a toll on a road based on time of day is a great idea. It’s a simple idea in many ways, but even at its simplest, it’s a bit of a “new paradigm” for drivers to accept.

(Slightly off the topic here, the question I have is “How is the toll priced?” The name used was “congestion pricing”, which suggests the goal is to reduce congestion. Congestion has a significant cost in lost productivity, as well as efficiency. But another major unrealized cost is the additional CO2 pollution created by larger numbers of cars, and longer times idling on the roads. Both are externalities.)

The automated E-Z Pass toll devices are a key part of the enabling technology behind this idea—you don’t have to worry about having the right change at the right time … unless you don’t have E-Z Pass. Without E-Z Pass, the program become dauntingly difficult for drivers.

And in truth, this is probably why this good law did not pass. The conclusion I drew in my thesis, more than 20 years ago, was the same: the only way such demand-based dynamically variable pricing works is when it’s predictable and not overly complicated.

In my analysis, when prices varied at more than two levels, people stopped paying attention to the “price signals” and kind of averaged the price together. And while I couldn’t really test this over the long term, it’s safe to say that only the simplest rules … ones with mnemonics especially, are workable, like “Double at Drive-time”, or something.

Environmentalists and economists are all bemoaning the failure of this law. Next time, it needs to be brain-dead, bone-simple-stupid.


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