Common Tragedies

Thoughts on Environmental Economics

Road pricing: the marginal driving experience

Posted by Daniel Hall on September 24, 2007

Researchers at the University of Iowa are going to test out a system in which drivers would pay road taxes by the mile:

Beginning early next year, drivers in six states will begin testing a new way to pay for roads and transit: Commuters will be charged for the miles they drive rather than paying taxes on gasoline purchased. …
Over the next two years, the drivers will get sample monthly bills for the number of miles they’ve driven. They can compare what they now pay in gasoline taxes with what they would have paid in per-mile fees.

GPS systems make implementing pay-by-the-mile systems simple. They could be used for auto insurance and road fees, and charges could adjust based on driving conditions or congestion. Would drivers view this as too invasive? Would there be concerns about extending this to automatic ticketing? (Big Brother knows how fast you are driving…)

I suspect there is a behavioral economics story here as well: I predict that drivers will demonstrate more sensitivity in their price response to a GPS unit that ticks up charges continually than they will to gas taxes, which tend to get hidden in gas prices. There is also the “sunk cost” factor: driving on an already-purchased tank of gas it feels “free” since it’s paid for; auto insurance that is paid by the month is effectively non-marginal.

Would you change your behavior driving if there was a “cab meter” in your car telling you in real-time what you were racking up in insurance and road fees?

H/T: Alex Tabarrok at Marginal Revolution.

One Response to “Road pricing: the marginal driving experience”

  1. Carlos Ferreira said

    Off the top of my head, a few pointers for success of road pricing as an environmental measure:
    – price highly congested areas, like cities, not the connections between them;
    – yield management of pricing: charge lower congestion fees off-peak, rise them as congestion increases;
    – tax vehicles according to their C02 emissions;
    – provide alternatives, like buses and trains. Make sure these alternatives are competitive.
    – price road usage especially high at weekends and bank holidays. Recreational usage of vehicles must be heavily taxed.

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