Toll Roads and Political Ignorance

Economics 101 indicates that toll roads can help solve the problem of traffic congestion. But public ignorance often prevents government from acting on this basic insight.

Traffic congestion in New Delhi, India.

Traffic congestion is a serious problem in many urban areas. Commuters waste many hours in transit, to say nothing of all the annoyance and aggravation they go through. As economist Benjamin Powell explains in a recent column at The Hill, tolls are an obvious solution to this problem:

Commuters are delayed in traffic an average 63 hours per year in the 15 largest urban areas of the United States. Washington, D.C., is the worst among these, averaging 82 hours. Even in smaller metro areas, with populations under 500,000, commuters are delayed an average 30 hours per year.

Any economist knows that congestion, like long lines, signals a shortage at the legal price. The price for using most roads is zero. Drivers all pay the same gas and excise taxes whether they use a busy highway or an empty stretch of country road, whether they drive at rush hour or late at night. We have a shortage of road space because people do not pay to use roads based on scarcity of space relative to demand.

The introduction of HOT in Virginia begins to address the problem. Single-passenger cars with internal-combustion engines — carpools and hybrids remain free — are charged a toll that varies according to road congestion during the peak morning and afternoon commute hours on the 10-mile stretch of I-66 between the Capital Beltway and Washington, D.C. When the road becomes congested, the price goes up. When the traffic flows freely, the price comes down.

Morning tolls reached a peak price of $40 the first week they were implemented, but often were around half that price. Some afternoon tolls were as low as $6.25.

Gridlock never appeared. Average commute speed in the first two days of tolling ranged between 54 and 57 miles per hour.

Peak price tolling incentivizes more people to avoid traffic jams by car-pooling, taking public transportation, traveling at less busy times, or otherwise adjusting their behavior. The idea that a good which is artificially underpriced will be overconsumed is basic Economics 101. Such overconsumption generally leads to lines and shortages, which are annoying for consumers and wasteful for society as a whole. Road congestion is a standard example of the problem. The same goes for areas where it is difficult to find street parking because it is "free" or subject only to very low prices. The result is that parking spaces are overused and drivers waste large amounts of time cruising around searching for an open space.

Economists across the political spectrum recognize that market-price tolls can help alleviate traffic congestion and parking shortages. They can especially do so if the prices vary with demand. As in the case of the HOT experiment in Virginia, which Powell describes, the price should be much higher at peak "rush hour" times than, for example, in the middle of the night. At times and places where traffic is relatively low, the optimal toll will often be zero. Charging a price is, however, useful in situations where there is high congestion.

Unfortunately, as Powell also points out, most state and local governments are wary of adopting tolls, despite the strong economic case for doing so. Powell ascribes this to governments' inability to profit from efficient resource allocation:

The politics that comes with government ownership of freeways is the main reason our congestion problem remains unsolved. Unlike private owners of scarce resources, government officials don't profit when they correct the inefficient use of their roads.

Private firms have a profit incentive to create a pricing system that maximizes the total value of roads for society. In contrast, politicians debate whether tolls should be set to maintain speeds around 55 miles an hour or whether tolls should be lowered so speeds only average 45 miles an hour. This, however, is an economic question, not a political one. A profit-and-loss statement is the best way to figure it out.

It is true that politicians, unlike owners of privately owned roads, cannot directly profit from increased efficiency in the use of these resources. But governments can in fact profit from reducing traffic congestion. Cutting the number of hours that commuters spend stuck in traffic can make the local economy more productive, because that time can be used on more valuable activities. It can also make the area more attractive to businesses and taxpayers. Increased productivity and investment can, in turn, grow the tax base, and fill government coffers.

Nonetheless, politicians tend to be wary of establishing tolls in areas where they don't already exist. And when they do establish them, the tolls are often too low to clear out traffic jams. It isn't hard to figure out why: voters hate tolls. When they get introduced, a political backlash often ensues. Because of widespread political and economic ignorance, most voters do not realize that tolls can reduce traffic congestion. When a toll is established, what they see is that the government (often in cahoots with corporate interests) is making them pay for a formerly "free" good. The same applies to instituting tolls for parking, or greatly increasing existing prices for it.

Such ignorance is often not the result of stupidity, but entirely rational. Because the chance that any one vote will make a difference to electoral outcomes is infinitesimally small, most voters have little incentive to pay attention to the details of government policy, or even to learn Economics 101. For the vast majority, studying traffic and parking policy is not what they want to do with their limited free time.

As a result, most ordinary people have little reason to question their visceral distaste for tolls. They naturally feel anger at having to pay for goods that are supposed to be "free." I have some sympathy for that reaction myself. Even though I am a law and economics scholar and understand the efficiency argument for tolls, I still feel annoyed whenever I have to pay one. I have a similar distaste for paying for parking. It isn't easy to force myself to remember that "free" roads and "free" parking aren't really free if you have to pay for them with time and effort lost stuck in traffic or in futile searches for an open space. Negative reactions to tolls are, of course, likely to be much stronger among people who do not realize their potential benefits at all. Even if tolls ultimately benefit the public by reducing traffic congestion, voters probably won't realize they are the cause of the improvement and could continue to resent them.

Sadly, this is just one of many areas where public ignorance is an obstacle to improving government policy. There is no easy solution to this problem. In my previous work on the subject, I have argued that we can best mitigate the harm caused by ignorance by limiting and decentralizing government power. But I admit this probably will not be easy to achieve, and that other approaches are also worth considering. At the very least, the beginning of wisdom is to start taking the problem of political ignorance seriously.

UPDATE: I have made a few minor additions to this post.