Common Tragedies

Thoughts on Environmental Economics

Mexico City drivers understand incentives. Regulators…

Posted by Daniel Hall on April 3, 2008

…not so much.

Lucas Davis examines Mexico City’s decision to limit all cars to only 4 weekdays of driving:

In 1989, the government of Mexico City introduced a program, Hoy No Circula, that bans most drivers from using their vehicles one weekday per week on the basis of the last digit of the vehicle’s license plate. This article measures the effect of the driving restrictions on air quality using high-frequency measures from monitoring stations. Across pollutants and specifications there is no evidence that the restrictions have improved air quality. Evidence from additional sources indicates that the restrictions led to an increase in the total number of vehicles in circulation as well as a change in composition toward high-emissions vehicles.

Note that this is not because of problems with compliance. (The police in Mexico City are happy to take your bribe.) The basic story is that drivers purchased a second (usually cheap and dirty) vehicle that allowed them to continue to driving every day of the week:

While it was hoped that the program would cause drivers to substitute to low-emissions forms of transportation, there is no evidence of a decrease in gasoline sales or an increase in public transportation use. Instead, the evidence indicates that HNC led to an increase in the total number of vehicles in circulation as well as a change in the composition of vehicles toward high-emissions vehicles.

Here is another write-up.

Ok, you say, big deal, Mexico City got what it deserved, no benefit for a dumb policy. But surely no one else out there is stupid enough to try this. Erm…

Indeed, since HNC was implemented, similar programs have been implemented such as pico y placa in Bogota, restriccion vehicular in Santiago, and rodizio in Sao Paolo. In total, over 50 million people live in cities with driving restrictions based on license plates.

Similar programs are currently being considered for Monterrey and Beijing. Driving restrictions may seem like a reasonable approach for addressing the difficult problem of urban air pollution. However, this article illustrates the importance of conducting ex ante economic analysis of the substitution patterns likely to be induced by these policies.

Toll roads. Tax gas. Subsidize mass transit. Use prices. DON’T try to ration a valuable resource with arbitrary rules, regardless of how “easy” you think they are to enforce.

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2 Responses to “Mexico City drivers understand incentives. Regulators…”

  1. Russ said

    It’s the same as how, according to what I read, even-odd day gas rationing back in the 70s just led to longer gas lines since people, having a more pessimistic estimate of “when will I be able to get gas again”, responded by filling up more often.

  2. El Macho Grandisimo said

    Folks
    It’s hard to imagine even for those of us who experienced it, but that was in the days of federal allocation of gasoline supplies.
    [and heating oil allocation and natural gas]. Futures markets did not exist! If you don’t believe me check for yourself: [
    ROBERT FENILI (1985) THE IMPACT OF DECONTROL ON GASOLINE WHOLESALERS AND RETAILERS
    Contemporary Economic Policy 3 (3) , 119–130 doi:10.1111/j.1465-7287.1985.tb00813.x ]

    “Since decontrol of the U.S. gasoline market in January 1981, substantial changes in operations of gasoline retailers (dealers) and wholesalers (jobbers) have occurred. This paper analyzes decontrols impact on the operations of these two classes of firms. A primary conclusion is that removing regulations allowed dealers to profit by cutting prices and margins for self-service gasoline, while increasing prices and margins for full-service gasoline. In addition, decontrol resulted in lower jobber margins and profitability, which in turn caused a substantial number of jobbers to exit from the market.

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