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.