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Externalities on highways. Today: We apply externalities to a real-life example. Today. A real-life example with externalities Automobile congestion We can use some economic tools to analyze the situation Equilibrium Market failure. Congestion.

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Externalities on highways

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externalities on highways

Externalities on highways

Today: We apply externalities to a real-life example

  • A real-life example with externalities
    • Automobile congestion
  • We can use some economic tools to analyze the situation
    • Equilibrium
    • Market failure
  • We will look at possible solutions to the problem
    • Tolls on congested routes
    • Building our way out of congestion
    • HOV lanes
    • Private highways and express lanes
      • Monopoly power?
    • Public transit and city design
recall route choice experiment from early in the quarter
Choose between a highway and a bridge in each of the 4 rounds

Travel time on HW: 20 minutes

Travel time on bridge: 9 + T minutes, where T is the number of bridge travelers

Recall route choice experiment from early in the quarter
simple case with a toll
Simple case with a toll
  • Suppose each car has 1 driver
  • If we charge a toll, let the toll be $5 per car
route choice and externalities
Route choice and externalities
  • Earlier this quarter, we used an activity to show that there is equilibrium on this route network w/o tolls: 11 cars on the bridge
  • However, there are externalities involved whenever an additional car travels on the bridge
why charging a toll is useful
Why charging a toll is useful
  • Without tolls, the bridge and highway have the same travel times in equilibrium
    • Take away the bridge and nobody’s travel time changes  No social value to the bridge
  • With tolls, some people can have shorter travel times
aren t tolls costs too
Aren’t tolls costs too?
  • If bridge tolls go to government, these are just transfers of money
  • Toll revenue can offset tax money that has to be collected
    • Remember that taxes have DWL, except in a case like this where externalities are present
      • In this case, an optimal tax can reduce DWL
equilibrium with tolls
Equilibrium with tolls
  • Each minute is $1 in time costs (per person)
    • Cost to travel on HW  $20
    • Cost to travel on bridge  time cost + $5
  • What is equilibrium?
    • Each person on the bridge has $15 in time cost  travel time of 15 minutes  6 cars on the bridge
in the following analysis
In the following analysis…
  • …we assume 1 person per car
    • This is so that we can more simply determine efficiency
  • …we assume 20 cars that must travel from A to B
applying our problem to real traffic problems
Applying our problem to real traffic problems
  • Los Angeles metro area
  • Some refer many of these freeways to be parking lots during rush hours
what are some potential ways to solve this problem
What are some potential ways to solve this problem?
  • Some people believe that we can build our way out of congestion
  • Let’s examine this problem in the context of our activity
suppose our activity from week 2
Suppose our activity from week 2
  • No tolls
  • Bridge travel time is 9 + T, where T represents the number of bridge travelers
  • Equilibrium: T = 11, 20 minute travel times for all
increased capacity on bridge
Increased capacity on bridge
  • New technology leads to bridge travel time at 9 + 0.733T
  • Equilibrium: T = 15, 20 minute travel times for all
what happens with increased bridge capacity
What happens with increased bridge capacity?
  • Increased capacity leads more people to travel on the bridge
  • This is known as the increased bridge capacity creating its own demand
in the real world
In the real world
  • Increasing freeway capacity creates its own demand
    • Some people traveling during non-rush hour periods will travel during rush hour after a freeway is expanded
  • Freeway expansion often costs billions of dollars to be effective during peak travel periods
hov lanes
HOV lanes
  • HOV lanes attempt to increase the number of people traveling on each lane (per hour)
  • These attempts have limited success
    • Benefit of carpool: Decreased travel time
    • Cost of carpool: Coordination issues
    • Problem: Most big cities on the west coast are built “horizontally”  sprawl
private highways
Private highways
  • Look at a short video on LA traffic
  • WARNING: This video is produced by reason.tv, an organization that advertises “Free minds and free markets”
  • After the video
    • I would like your thoughts about whether or not you believe the suggestions in the video will help solve our commuting problems
    • We will discuss benefits and costs about private highways
some references in the video
Some references in the video

Highway 405: Often one of the busier freeways in the LA metro area; however, recent expansion has helped some

Highway 91 Express Lanes: Part success, part failure

why could private highways be successful
Why could private highways be successful?
  • Uses prices to control congestion
  • Private financing would prevent tax money from having to be used
  • More private highways would decrease demand for free roads
potential problems for private highways
Potential problems for private highways
  • Monopoly power
    • Positive economic profits if not regulated
    • Clauses against increasing capacity on parallel routes
  • Loss of space for expansion of “free” lanes
  • Contracts are often long (30-99 years)
  • Private highways are often built in places with low demand
    • Tollways in Orange County
possible solution public control over priced highways
Possible solution: Public control over priced highways
  • This is what happened on the 91 Express Lanes in Orange County (eventually)
    • If a highway is privately built
      • Monopoly problems
    • Public buy-out of the privately-built lanes
      • With public control, more carpooling has been encouraged
benefits of public control of priced highways
Benefits of public control of priced highways
  • Gasoline taxes can be reduced in congested areas to offset congestion pricing
  • Pricing increases efficiency, unlike taxes
  • Non-commuting traffic has an economic incentive to travel during times of little or no congestion
  • Trips with little economic value can be avoided
    • Remember: With externalities, these trips have Social MB < Social MC
91 express lanes toll schedule
91 Express Lanes toll schedule

$9.55 toll going eastbound on Thursdays, 4 pm hour

public transit and city design
Public transit and city design
  • People often hope that public transit is the solution
    • However, many people hope that “someone else” takes public transit
      • Why? Slow, inconvenient, lack of privacy
      • See article on class website for a funny look at public transit
    • Public transit can only be a long-term solution if it is faster and less costly than driving
public transit and city design28
Public transit and city design
  • City designs usually make public transit difficult for many people to use effectively
    • Sprawl leads to people originating travel in many different places
    • Express buses are difficult to implement
    • Local buses are slow, used mostly by people with low value of time
public transit and city design29
Public transit and city design
  • City planners can make public transit more desirable
    • Increased population density near public transit
    • Areas with big workplace density, especially near bus routes and rail lines
    • Designated bus lanes to make bus travel faster than driving solo
public transit and city design30
Public transit and city design
  • The problem with these potential solutions
    • People in these cities want their single family homes, low density neighborhoods
    • People value privacy highly
  • This leads to the externality problems of congestion
  • Congestion is a big economic problem in the US, due to the externalities involved
  • There are many possible solutions
    • Each has its advantages and disadvantages