Applying supply and demand to road space

July 31, 2012

Free Market Foundation

Some U.S. cities have adopted time-of-day pricing to their congested commuter highways raising tolls during peak traffic hours and reducing tolls during slack periods.

But for political reasons the practice isn’t universally accepted. The American Automobile Association, for example, lobbies against applying the law of supply and demand to road space, even though traffic delays cost American taxpayers and motorists an estimated $78 billion annually in lost wages and fuel.

Opponents of time-of-day pricing often argue that it results in “Lexus lanes” for wealthy motorists who can afford them but if the revenues were used to reduce other driving costs, such as fuel taxes, all would benefit.

Nevertheless, successful pricing schemes have been put in place in a handful of traffic-clogged cities such as New York, Houston, Dallas, Los Angeles and San Diego.

Experts suggest that initiating congestion pricing in the Washington, D.C., area could bring in $400 million a year in toll revenue while saving drivers $4 billion in time, fuel and repairs over 20 years.

In 1982, traffic delays cost motorists 11 hours annually, which by 1999 had reached 36 hours necessitating consumption of an extra 6.8 billion gallons of fuel.

Officials in Fort Myers, Florida., found that congestion pricing achieved public support through a public relations campaign that emphasised discounts, rather than the tolls themselves.

Source: Chana R. Schoenberger, Stop and Go, Forbes, May 13, 2002.

For text http://www.forbes.com/forbes/2002/0513/080.html
For more on Privatization and Innovation http://www.ncpa.org/iss/pri

FMF Policy Bulletin/14 May 2002