Common Tragedies

Thoughts on Environmental Economics

Path dependency

Posted by Daniel Hall on May 4, 2008

Geoffrey Styles makes a great observation about the recent run-up in gas prices:

A big part of our problem is that most Americans are still driving cars that were purchased when gasoline was under $1.50/gal., to commute between work and home locations that were chosen when fuel was even cheaper.

He also makes a nice comparison:

As of this week, nominal US retail gasoline prices have gone up by 25% in the last year and by 130% in the last five years. How does that compare to other countries? Well, motorists in the UK are experiencing prices that are now 25% higher than the average of last year, and 42% higher than five years ago, but gas hasn’t been cheap in Europe for more than a generation. Buffered by the strong Euro, gasoline in Germany has increased by a smaller percentage, 19% vs. the 2007 average and 29% over five years.

Hear that? Gas hasn’t been cheap in Europe for more than a generation. Europe’s development path — decisions about land use and urban planning and transit decisions — was determined in an environment with much higher gas prices. Not only are current price increases in Europe smaller in relative terms, but consumers there live within a system that makes it easier absorb the absolute increases as well.*

America could do its future self a big favor by realizing that expensive gas is very likely here to stay. Pricing carbon — a near inevitability in the near future — will make gas prices higher. Consumers can switch to more fuel-efficient cars but the big changes — in how we plan our communities or develop our transportation infrastructure — are going to require some policy changes. And these policy changes should include the recognition that gas will — and should — be much more expensive in the future.

You can read great arguments for these types of policies — more density in development, more investment in mass transit, etc. — almost every day over at Ryan Avent’s superb blog. Or to grab a great suggestion from Matt Yglesias,

if we were to raise the gas tax, then rebate half the revenues to citizens on some kind of flat per person basis, and make the other half available to fund transit projects, there’d be no net burden on the population, you’d create an incentive to use alternative forms of transportation where they exist, and you’d have a pool of revenue available to create alternative forms of transportation.

*Of course I realize there is an endogeneity problem here: higher gas taxes in Europe were politically tractable in the first place because Europe was already more dense and less car-based. But it doesn’t alter the fact that a counterfactual Europe with much lower gas taxes for the last 25 years would look very different.

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2 Responses to “Path dependency”

  1. Mike L. said

    I agree that high gas prices are most likely here to stay and they will result in changes in our lifestyle, whether we like it or not. One change I don’t hear people talk about very much is telecomuting. I realize not everyone has the type of job I have, but for me it seems rather silly that I get in my car and drive 30 minutes each way, just to sit at a computer, talk on the phone, and have meetings once in a while. With technology advancements, all of those things could be done just as easily from home.

    I expect that as gas prices continue to rise, employees will start asking for this more, and companies will start providing it in order to attract better employees.

    Of course, this change alone won’t be nearly enough, but I think it will be part of the solution.

    I alo predict the demise of shopping malls and (eventually) big box stores as having things shipped directly to our homes becomes cheaper. (Yes, I realize it would be shipped on trucks, but it’s shipped along with many other things, instead of in the backseat of an SUV by itself).

    My wife thinks I’m crazy.

  2. [...] Hall is doing work: Geoffrey Styles makes a great observation about the recent run-up in gas prices: A big part of our [...]

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