Common Tragedies

Thoughts on Environmental Economics

Expensive gas can be good for you

Posted by Daniel Hall on January 8, 2008

When congestion is a factor in driving speeds, our results suggests that, for the average driver, a gasoline tax would be approximately cost-neutral, with the value of time savings offsetting the cost of increased gasoline prices. It may even be possible for a gasoline tax to be welfare improving independent of pollution externalities if the opportunity cost of time is large enough for drivers in congested areas.

The paper examines the impact of gas prices on freeway speeds in Los Angeles from 2001 to 2006. The authors find that higher gas prices increase rush-hour speeds by reducing congestion — drivers carpool more and increase their use of mass transit. Note that while the time-savings compensates those who continue to drive, those who switch transit modes may have reduced welfare.

The other take-home message is to SLOW DOWN!*

On average, every five miles per hour (mph) that a driver exceeds 60 mph is roughly equivalent to paying an additional $0.20 per gallon for gasoline.

Not surprisingly (at least not to me) they find that on uncongested roads drivers do not bother to slow down in response to higher prices:

We have found that drivers in uncongested conditions do not respond to a change in price, despite the increased costs of driving faster than 60 mph. While people may make large changes in behavior (e.g., buy more fuel-efficient cars, take fewer trips), they do not make small, marginal changes in driving behavior.

The authors are Daniel Kaffine and Nicholas Burger, who is on the job market from UC Santa Barbara.

*Tim Haab and John Whitehead tell you to Drive Less! if you want to reduce gas prices. I am thinking I will make Slow Down! the slogan here at Common Tragedies.

5 Responses to “Expensive gas can be good for you”

  1. Chris said

    I am thinking I will make Slow Down! the slogan here at Common Tragedies.

    This from the man who almost rolled us off a cliff on Gibraltar Road.

  2. Daniel Hall said

    Hey, I have gotten wiser and, you know, more boring in my old age.

  3. David said

    I lose a lot of money every day.

  4. Patrick Y said

    What about the Autobahns? In a country where gas cost around $7 per gallon, you still see people driving up to 320km/hr. In fact, the RECOMMENDED speed for the unrestricted parts of the autobahns is 130km/hr (~81mph). Any studies done on this? I’ll volunteer to be a test subject in losing money. 🙂 That said, one difference about Europe is that the octane is higher than in the States. That’s why if you have a Mercedes or BMW or Audi (or any other fancy European cars), you ALMOST always need to get premium gas…

  5. […] interesting post from last month on those hidden costs and benefits of higher gas prices. Turns out, according to some smarty-pants […]

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