In last week’s post I waded through some of the political mud that was thrown about in response to the recommendation to consider road pricing in Auckland. I concluded there’s not many good reasons to avoid talking about road pricing, even if we don’t need to rush.

In doing so, however, I noticed that much of the discussion on road pricing occurs at what my friend Jarrett Walker calls “low altitude“. By this I mean the discussions tend to quickly descend into debates over things like the level of pricing, payment systems, and what to do with revenue. While I acknowledge these are important questions, they are also questions of detail: They relate to the “how” rather than the “why“. In my experience a good understanding of “why” helps answer the “how”.

In this post I want to look at two ways in which road pricing generate economic benefits. It’s a story of two brilliant people: One named Pigou and one named Vickrey …

1. Static efficiencies – The poisoned chalice of Pigouvian pricing

If you happen to search for “economics of road pricing”, then it’s likely something similar to the following image will pop up on your screen (source). In a nutshell, this graph illustrates the static efficiencies generated by road pricing.

Let’s walk through the details a bit. First, the graph measures traffic volumes on the horizontal axis and trip costs on the vertical axis.

The line marked “Demand” slopes down: As costs fall, traffic volumes rise. That’s sensible: If it is cheaper to travel by car, then more people drive – and vice versa. Now consider the ski-jump shaped curve labelled “average cost”. This shows the average cost of driving from the perspective of drivers; it curves upwards because your travel-time will increase as traffic volumes increase. Now look at the ski jump shaped curve labelled “marginal cost”, which refers to the social cost of each additional vehicle trip. The reason it curves upwards faster than the average cost is because each new car causes additional delays to all existing users. These delays are not reflected in an individual’s decisions, i.e. they are external.

Two important points are also marked on the graph; these are 1) the “Untolled equilbrium” and 2) the (somewhat vaguely named) “Objective”. The untolled equilibrium is where drivers don’t pay the costs of the delays they cause, i.e. it represents the status quo. This point is associated with higher traffic volumes and lower costs than the point marked “Objective”. The latter includes the costs of delays caused to others, and so is associated with lower traffic volumes.

So where do the benefits from road pricing arise? Well, because congestion is an external cost imposed on other people, more people choose to drive than is socially optimal. In this context, internalising congestion costs by way of a toll, a’ la road pricing, reduces demand to a more efficient level, i.e. society as a whole is better off. I should note at this point that congestion is but one externality associated with driving. Noise, air pollution, and accidents are also examples of externalities that drivers should probably pay for. The concept of internalising externalities from traffic congestion was first articulated by an English chap called Pigou, hence the moniker “Pigouvian pricing”.

At this point, many people close the road pricing story book, turn to their friends and family and ask: So shall we price the poor beggars off the roads then? To which the answer is usually “no”, or at best an uncomfortable “maybe”. But we’ll be better off, you might exclaim. Only to be chased out of town by angry people with pitchforks.

Thankfully, the road pricing storybook has another, often forgotten, chapter. Look carefully at the horizontal axis of the above figure, which shows traffic volumes as a function of price, and price only. Can you think of another variable that predictably affects traffic demands and the congestion arising therefrom? Like perhaps time of day? Hmm …

2. Dynamic efficiencies – Get onboard the Vickrey express

The image below is not one that’s easy to find online. I looked and couldn’t find any. Instead, it’s taken directly from my lecture slides (Acknowledgement: This guy).

Bottleneck model

Believe it or not, this psychedelic rectangle is the so-called “bottleneck model”. The vertical axis measures cost, whereas the horizontal axis measures clock time. The point labelled t* is the preferred arrival time at your destination, say 8am at work. The points tq and tq’ represent the start and end of the peak period respectively, say 6-9am, during which time queues form in front of a “bottleneck”, i.e. a capacity constraint. All users are the same (homogenous).

The bottleneck model was developed by Vickrey. One of his key insights is that all travelers face the same cost; the only difference is how costs are split between 1) schedule delay and 2) queuing delay. Another way to think about it: You can either 1) travel early/late and face a shorter queue (but arrive at work early/late) or 2) leave home at the time that gets you to work at the preferred time t* (but sit in queues on your way). Vickrey shows that in equilibrium, options 1 and 2 cost the same (hence why the top of the rectangle, which represents the sum of schedule delay and queuing delay, is flat).

The two green triangles in the above figure represents schedule delay; this is the cost associated with arriving at your destination before or after the preferred time t*. Note that the two green triangles are different shapes, because people generally place a higher value on arriving later than arriving early (NB: This doesn’t change the story). The red area represents the cost of time spent queuing, or “congestion”; it increases from 0 (at tq) to c0 (at t*) and then declines to 0 again (at tq’).

Vickrey showed the optimal toll at any point in time is equal to the length of the vertical red line. That is, if you want to maximise people’s welfare, then you would set a time-varying toll that started off at zero at t = tq and increased to c0 at t*, before decreasing to zero again by tq. This toll would encourage people to leave later, and therefore avoid queues forming early in the morning. In essence, this makes use of underutilised capacity that exists later in the morning; it is a dynamic efficiency.

How does charging a toll equivalent to the cost of queuing delays leave people better off? Well, for the simple reason that time spent queuing (red area) has been “monetized. And unlike time spent in traffic, monetary revenue from tolls can be spent on other things, say lower taxes or increased government investment (depending on the colour of your political pajamas). Basically, road pricing takes wasted time and turns it into something useful (toll revenue).

One point to emphasise; These so-called “dynamic efficiencies” are achieved by changes in departure times (specifically leaving home later), not changes in demand. Moreover, the cost people face is the same with or without the toll. All the latter does is take a time cost and turn it into a monetary cost. The Vickrey model is in this respect very different from the Pigouvian model discussed in the previous section, where benefits arose from suppressing demand.

Conclusions

In this post I’ve presented two simple economic models that help illustrate two different types of benefits from road pricing.

The Pigouvian model focuses on demand. It concludes that a fixed toll should be used to internalise congestion externalities and price some drivers off the road. In contrast, Vickrey’s model argues that a time-varying toll can be used to monetize time spent queuing. The toll encourages people to change departure times, eliminating queues, and generating revenue that can be used for other things. This is as close to a free lunch as you tend to get in economic terms.

Discussions on road pricing often ignore dynamic efficiencies. I think this is unfortunate because I think they are potentially the largest source of benefits. Consider the productivity benefits to commercial vehicles from eliminating queues. Faster and more reliable travel-times would mean that commercial vehicles, and their drivers, could get through more work every day. Think of all the times your tradespeople or deliveries have been delayed en route. It’s frustrating for them, as well as you, but ultimately it’s you and I who pay the price of those delays: Inefficiencies arising from congestion are factored into the price of almost everything we buy.

Real life is obviously more complicated than these economic models imply; real people are not identical and actual tolls are not able to vary by infinitesimal amounts. In response to these realities, some modern road pricing schemes, such as that implemented in Stockholm, blend a fixed toll (a’ la Pigou) with a time-varying toll (a’ la Vickrey). Hybrid road pricing schemes like Stockholm’s have struck a reasonable balance between pricing some drivers off the road, while also encouraging others to adjust their departure times. You can read more about the history and politics of Stockholm’s scheme here.

I want to finish with a final comment on revenue recycling, because I think it’s essential to the potential viability of any road pricing scheme and is something that I will look to cover in future posts. One option would be to use toll revenues generated by road pricing to make a direct, annual per capita payment to Auckland households. This might be similar to the electricity trust payment paid to some households, and would ensure that everyone faced the marginal costs of travelling at peak times – with some money paid back later. A second option would be to use the money to reduce rates. For example, revenue from road pricing could be applied to reduce or eliminate the uniform annual general charge (UAGC). Let me know if you think of other options.

Anyway, that’s more than enough poppycock from me. Keen to hear what others think, and if there are particular aspects of road pricing that you’d like us to research, then please let us know in the comments and we’ll see if we can build it into future posts.

Share this

65 comments

  1. Awesome post with important points to consider when our decision makers look to balance system implementation and operating cost (the new “loss”) against the demand suppression and/or demand shifting benefits. Personally, I “demand shift” so extremely that I have a 12 minute commute from the Shore to CBD (then I go to the gym… I actually just changed my t*) so I’m quite happy for the bulk of the volume to spend twice that time getting along the last two 2km of Onewa Rd at 7:20 🙂 We could call this NIMTPism (Not In My Time Period).

    1. thank you – and congratulations: You’re a living, breathing example of a dynamic efficiency. Perhaps more so while at the gym?

      More seriously, the interesting thing about Vickrey’s analysis is that the toll needs to start at the exact same time as queuing. So this would probably be 6-6.30am in Auckland, and last until say 9.30 – 10am.

  2. Interesting to see the theory behind it all.
    In Auckland my main concerns are going to be that people will start rat-running (rat-walking) onto other streets to avoid motorway tolls. These streets will quickly become blocked (hence the rat-walking pace) meaning those people that are legitimately using those streets to get from A to B are going to be stuck behind those now using them to go from A to C via B.
    I think AT will need to make a massive push a year before tolling to get PT usage up (even if it means losing a bit of money on it). People will need the alternative and need to be used to it before rolling comes in. Once tolling is in place the revenue needs to be spent on improving PT further.

    1. Excellent point. This is one reason why I didn’t like the NZCID’s proposal for a toll to enter the highways.

      It’s also why I’d favour a GPS based per kilometre toll, rather than a cordon toll. With the GPS based per kilometre toll you pay for every kilometre you drive in a congested area, regardless of the road you drive on.

      So it would avoid all of the rat-running issues.

      1. Sorry to miss the point of the post and delve straight back into the “how” – but is GPS-based tolling an existing technology? Seems like it would be vastly more complicated to implement than a cordon-toll.

        Edit – nevermind, found the wikipedia page I needed: https://en.wikipedia.org/wiki/GNSS_road_pricing and the relevant stuff article http://www.stuff.co.nz/business/81344947/GPS-devices-will-track-Aucklanders-and-toll-them-based-on-where-and-when-they-drive

        1. Germany has a GPS-bases toll for trucks over 7.5t on all of its motorways and some state highways. It’s been operational since 2005 – so the technology does exist. It was opened two years behind schedule and was expensive to implement and to operate, but still generates massive revenues that mostly flow back to road maintenance.
          https://en.wikipedia.org/wiki/LKW-Maut “The UK Commission for Integrated Transport (2007) cites a 6% decrease in the number of empty runs and a 6% shift to rail from road freight mode as a result of implementing the system. Those factors are likely to lower the emissions of carbon dioxide and other pollutants on German roads.”
          https://en.wikipedia.org/wiki/Toll_Collect
          It has lead to some trucks using other local roads to avoid the toll, which is why it is being extended to all state highways in the near future.

  3. Cool, hadn’t heard of Vickrey before. On observing the Onewa Rd bottleneck every morning for many years, it occured to me a while ago that everyone was queuing for no actual aggregate benefit, it was just the only way to “get your place in the line”. I thought that if all us Kaipatikians had a ring around each night we could organise so that Bob from Birkdale left home the next morning at 7:10:32 while Cheryl from Chatswood left at 7:12:28 etc. Then everyone could drive down Onewa Rd congestion free and turn up at the on ramp at exactly the same time as they would have done anyway, but without all that queuing. Vickrey’s plan is arguably more practical 🙂

    1. Cute idea! Your phone tree is equivalent to Vickrey, just doesn’t use prices.

      Yes, Vickrey is brilliant. I guess that’s why he was awarded the Nobel Prize in economics for (work on auctions and imperfect information, not road pricing)?

      He was also rather innovative, and took it upon himself to develop a radio transmitter in his garage to show that electronic road tolling was not some pie in the sky idea. Not a trivial task with the electronics technology of the day. Nice example of a non-ivory tower economist.

      In terms of commuting, Vickrey also practiced what he preached: He was known to roller skate to work.

  4. Once again, there needs to be more attractive cheaper and efficient alternatives. The government is painfully aware that taxing drivers won’t make any difference if the majority have no options. And also as you well know the poor will be hit hardest. I love all the theories presented by those least likely impacted. Kind of like Nimbys don’t you think?

    1. Yes, better alternatives are important. Thank goodness we’re investing so much in public transport and walking/cycling in Auckland. Wouldn’t you agree?

      Yes, you’re right that low income households may be negatively affected, hence why I’ve proposed to recycle revenues by reducing regressive taxes elsewhere. Great idea yes? Sorted that for ya.

      Finally, are you suggesting people can’t think beyond their own experiences? Interesting perspective. Shall we discount everything you say on that basis? I think so – smell ya later.

      P.s. The economist called Ricardo had some interesting theories. Do you subscribe to them? Or not because he lived hundreds of years ago, so he’s kind of a NIMBY too?

    2. Most societal change is led from the margin. If the majority have no other options, that means a minority do have other options. If the minority pursue those options, that will make some difference, because the majority will have less congested roads. Some useful difference, not revolutionary change, is what we’re aiming for.

    3. The concern about equity is a fair one – poorer outer-suburban people tend to be most car-dependent, and so will be more affected by a charge. The appropriate response is to channel some of the revenue back to them through the tax system, as the top-poster suggested. Then most would be no worse off – but they would still have the incentive to reduce their peak-period car use if they wish.

      Even with this sort of compensation, some people would be worse off – those with the highest unavoidable peak-period car use. It’s just not possible for a compensation system based on averages to be good for everyone. But ‘leave no-one worse off’ is a recipe for complete paralysis of public policy. There comes a point where you have to say that the community benefit from some policy change matters more.

  5. Is there overlap between the two models? I always thought of that first graph as being a snapshot in time, with the goal of not simply “suppressing demand”, but more specifically “suppressing demand at that particular moment in time” and an implication that some of that suppression would be travel being shifted to other times.

    Also you briefly mention that other externalities like noise, pollution and accidents should probably be charged for. Do you think drivers are adequately charged for these through other mechanisms (like fuel tax, ACC levies) or are you suggesting Auckland road pricing could be an opportunity to better charge for these other externalities as well?

    1. I wondered about that too and the answer is no. Reason being that Vickrey assumes demand to be constant before/after the toll. You’d also have to link your Pigouvian snapshots to allow for dynamic efficiencies.

    2. Oh, and with regards to other externalities, my gut feeling is that they’re probably not all captured by existing charges and so should be captured under a road pricing scheme.

  6. I work in Oteha Valley and regularly need to go see clients in the city. It is a 20min walk to the bus station as there are no parking spaces and no buses that can get me there, then I have to walk 10 mins from britomart to the clients office. Then I need to do this in reverse. taking into account waiting times at the bus station this can easily add an additional two hours to the time required for a meeting. Or I can jump in my car park right outside and only add maybe 40 mins travelling time all up if traffic is OK, I generally time my meetings outside of peak. If its raining there is no chance I am walking to the bus station. If I have to go to Henderson then PT isn’t even worth considering.

    How is the public transport option in anyway attractive? It is only valid if you live near the route you need and the route takes you to where you want to go. The PT system in Auckland (particularly on the shore) is too fragmented to be useful and now I am going to get charged to use the road which is ridiculous. I would use PT if it was viable but it isn’t.

    It isn’t viable to move to the city and any additional costs, be that spent time waiting for a bus or additional tolls, is getting added directly to my clients bill. As Ricardo said the tolls are going to affect the people who are least able to afford it or are going to be simply added to the cost of business at which point everybody will start paying, its a double whammy. Unless you live within stones throw from a bus stop that drops you right outside of your retail or call centre job which doesn’t require you to leave the premise.

    1. Catch an uber to the bus station.

      Remember also that not everyone has to change behaviour post-toll.

      Lets say you keep driving, but 20% of people stop driving. Suddenly you can get to and from your clients quicker. Saving time. Costing them less money.

      Plus, at the end of the year you get $2000 deposited in your bank account.

      1. To add to that Stu -variable tolling allocates a finite resource -uncongested road space by users tolerance to price rather queuing. As you say Stu to achieve uncongested routes might only require 20% of people to change their behaviour. These might be the people who live closer to public transport who would prefer to pay a PT fare rather than a congestion charge. But it could be those with flexibility in the timing of their movements, able to change routes/destinations for a less congested option, work from homes etc.

      2. so, $5 uber to station, $6.5 bus fare to city, both ways resulting in $23 not including the additional time. Or I drive and park in the city for half of that and reduced time. I wonder which one most people will pick. You could argue that the additional toll will offset the cost of the bus but would it be as much as the bus?

        Charging additional tolls for the sake of it when the alternative to driving is more expensive and time consuming is a joke.

        They should replace the majority of the dedicated NEX buses and redirect local buses onto the expressway at the nearest station. Then add in some additional loop buses. This would be much more time saving and easier for people

        1. Nobody is suggesting charging tolls for their own sake. I have to ask: Did you read the post?

          And like i said above tolls only affect 20% of demand. Most people just keep doing what they’re doing. Just faster and more reliably.

    2. OK. so you need to use your car, for reasons that I don’t quibble with.

      The point is, not everyone is in exactly your position. If the people who can change their travel habits most easily in response to a charge do so, then you get to enjoy less congested roads.

      No one is saying that any particular person should be forced to change their travel habits. We just say that if everyone had to pay for the congestion they cause, some people would change their travel habits and roads would be less congested. The question then is, how much do you want less congested roads?

      1. john smith, I would get to use less congested roads but I would have to pay more for that.

        If PT was less fragmented and of more use then more people would use it as it would be the better option. More people, more money, less congestion, no tolling required and everybody happy. Using one of the feeder services adds too much time to your journey just to be able to transfer onto the NEX.

        The fact this doesn’t already happen shows the system is not good enough and the toll is just being used to force people to mode shift or face a penalty.

    3. Well with pricing and improved alternatives your drive will be better, faster and less congested. Without pricing and better alternatives FOR OTHERS TO USE, you will be paying more and more with your time, which no amount of road building will fix.

      Either way you pay.

      1. Patrick, you are missing the point. You infer that I want to drive. I would be quite happy to use PT to commute but it is not viable for the majority of people (which is why there is such a large amount of cars on the road ) and I will now I get penalised to use my car which is the only viable option. Therefore I am unable to use either option without getting pinged, even though it may be cheaper overall for me to drive.

        1. Ronald: revenue is returned to residents as noted everywhere on this thread. Its also topic of next post so dont feel too hard done by until youve read that.

    4. The solution there is to price the busway car parks hourly to encourage more use for short trips (least flexibility) and less for peak period commuters (most flexibility).

      Also, the bus from Albany is $4.90, not $6.50.

      1. So on top of the new toll you would also start charging people to use the car parks at the stations. When do you stop smmacking people with extra charges to use their car. The fundamental issue that you guys keep ignoring is that the PT network is not good enough for everybody and they have no other choise but to use their car. Why shoukd they be constatnly penalised.

        AT website clearly says 6.50 from albany bus station ti Britomart, so now if we add on the parking fees this is going be heding towards $35 to $40 to catch the bus into town if you dont live within walking distance of the station and “just get an Uber” to the station as Stuart says. Sounds reasonable…. Not

        1. AT journey planner says HOP fare is $4.90, while cash fare is $6.50. Given that 80% of journeys will be by HOP, I think it’s reasonable to use the $4,90 figure.

          In terms of my suggestion to use Uber, that was in the context of a work journey, i.e. someone who was visiting clients at Britomart, not for commuting purposes. Although I do know that some people do use Uber for commuting.

          Likely to become cheaper and more common as they roll out their ride share scheme as well.

          Note again this is a conversation about what to do in 5-10 years, not necessarily what to do now. No point getting het up.

  7. Arthur Pigou was English, one of the many who taught at Cambridge. Overshadowed by both Keynes and Marshall but just as important.

  8. Regarding the revenue recycling – I’d argue perhaps a 50/50 split between the revenue being allocated to transport infrastructure spending, and a yearly rebate to households. Rates reduction might be an easy way of doing it, but it benefits the owners of property (or multiple properties) who may not even live in Auckland, whereas their tenants who use the roads and pay the charges daily wouldn’t see any of the money..

  9. I really like this post on road pricing theory – it’s very well explained and I can’t argue with the theory. But to me, unless people have the ability to switch from driving to other modes it will be highly regressive. So as Rita says, it’s a double-whammy for folks on the Shore and other places. Already we get to pay extra car-related costs because AT won’t deliver decent public transport outside of the old Auckland Council boundaries, and then hooray, we’ll get to pay again as a penalty for having to drive. Okay, there may well be an overall benefit if traffic is reduced, but will this overall benefit is at the cost of a few.

    How much flexibility do drivers as commuters really have? Well, plenty on the isthmus of course. But the demand curve drawn above will be much more vertical for North Shore residents than it is for central residents, and therefore I would expect the equilibrium price points and outcomes (benefits) to be very different as well. It might be interesting to calculate equilibrium pricing around Auckland, and to apply it to public transport usage as well. We probably need five such demand/cost curves to cover the Auckland region.

    While there may be a modest benefit in road use charging, which will hopefully increase as road users gain more travel options, the bigger savings might come in pricing public transport by time. Look at the cost of the proposed Mt Eden LRT for example – imagine if local peak demand for buses could be smoothed using price signals on Dominion Road. Then we could potentially save a billion dollars or so in capital by imposing peak-time pricing and incremental improvements like double-deckers and extended bus lanes.

    One last thing, road charging cannot be allowed to become like those appalling Electricity Trust refunds that you mention, where year after year central Auckland has been allowed to fill its pockets with surpluses from excess power charges imposed elsewhere in the city. There’s already enough ill-feeling about this, and the super-city generally, without imposing more selective charges onto residents outside of the centre. Road-pricing might well be the most logical way to fund transport improvements in the long term, and it makes sense to look into early implementation even though it might need to be set to a zero charge initially for those outside of the transport network.

    1. David b –

      Not necessarily regressive. Imagine a society of 100 people where 50% of pop is rich and poor respectively. Everyone pays same $2 toll. For simplicities sake assume there’s no alternative so everyone keeps driving. That generates $200 in revenue total. Now say government decides to redistribute this revenue only to poor people, each of whom receives $4. In which case they get back more than they pay in.

      Extreme example highlights main key point: you can’t conclude a charge is regressive until you know what revenue is used for.

    2. “appalling Electricity Trust refunds” Hyperbole much?
      You lot on the shore decided to sell your shares and people in the old Auckland City didn’t. Too late too whinge about it now. As ye sow, so shall ye reap.
      Talking of whinging: why do we get this continual moaning sound from the shore? ‘We’re left out.’ ‘They have got something we haven’t.’
      The busway was one of (if not the) largest PT projects in NZ! It is soon to be extended. And still they whinge.

  10. Hi Stu – Michael Newbery (?sp) did a lot of work on optimal congestion charges by level of congestion a few years ago if you are interested.

    In terms of what to do with the funding – my view is that the best option would be to use congestion revenue to fund road maintenance / road removal and alternatives (eg public transport, walking, cycling, medium density affordable housing) – this enhances political acceptability (by analogy with carbon tax revenues), is better from an equity perspective, and is arguably economically efficient from a dynamic perspective as well. The last point may not be intuitive initially but it follows from the thought experiment of what the city might look like if road pricing had been in place before the motorway network was built.

    There are a few other wrinkles in here – other local externalities ought to be priced on a willingness to accept basis for those affected, and so may add quite a lot to a dynamic charge.

    1. yes investment in alternatives would I think generally be progressive.

      I still think some of the money should be returned to households directly, though. Primarily because 1) some are genuinely budget constrained; 2) some might not be able to use alternatives; and 3) it’s a good way to build support for the scehem

  11. Problem with this kind of analysis is it is a sub optimization of a bigger problem, so while you can make the model of the roads and come up with controls that change the behavior and optimize traffic, the overall effect on society might end up negative.

    A big problem I see is the wealth of concentration based on distance from the center of the city. If, on average, the poorest are the furthermost from the city and end up paying the largest tolls I think the system has fundamentally failed. It would be interesting if we say “motorways are for people to cover larger distances quickly” and we have an increasing toll charge for hopping on the motorway the closer you are to the city.

    1. Maybe. Depends not just on distribution of households wrt city centre but also employment. Tend to find that incomes do decline as distance to city increases, but also employment patterns become more dispersed and localised. So hard to say.

      Also, as pointed out several times in previous comments: you cant conclude whether a charge is regressive until you know what happens to revenue. E.g. revenue could be used to reduce even more regressive charges elsewhere.

      1. Yes, that’s pretty much the problem with this. You can’t leave the revenue part as a separate exercise as what’s being proposed is a toll / revenue feedback system. The errors of tolling and revenue will be multiplied together to provide the end result. In control theory, you need a model of the closed system (your controls and feedback ) otherwise you are doomed to massive failure 🙂 of course you also need a clear set of measures of successful control that’s beyond the traffic part of the problem otherwise you get a sub-optimization that can negatively effect things at a level that really matters.

        1. Keith, fair point – but note that the only reason I’m leaving it as a separate exercise here is because 1) it can be isolated and 2) it’s too much to fit into one post.

          Of course when you’re making a decision about whether to do something you consider the bigger picture. But you can still build that picture up piece by piece.

  12. Great post. I’m increasingly persuaded of the advantages and I’m optimistic (to go back to a lower altitude) that it’s possible to implement it in a way that compensates for the disadvantages to low-income and transport-poor people.

    I like the idea of using the revenue to offset the UAGC, though maybe an annual distribution per household would better ensure that the revenue was shared evenly (since a reduction in UAGC would be enjoyed mostly by ratepayers and not necessarily passed on to renters). But are there arguments for or against keeping it in the transport system and using it for PT projects or to reduce fares, maybe to fund an offpeak discount?

    Side note: I can already hear the screaming from the anti-bike lobby about how we don’t pay road tolls so we have no right to be on the road…

    1. Thanks and good questions. I suspect annual dividend per household would be better yes. In terms of revenue, we n
      Know there’s about 1 million peak vehicle trips per day. Assume 800k pay $2 each equals $1.6 million per day. Times 200 is 320 million per year. Knock off a bit for collection costs. Then distribute. So you’re looking at close to $1000 per household p.a. or $20 per week. So dividend alone covers first four days per week of tolls. Not bad eh?

  13. Maybe. Depends not just on distribution of households wrt city centre but also employment. Tend to find that incomes do decline as distance to city increases, but also employment patterns become more dispersed and localised. So hard to say.

    Also, as pointed out several times in previous comments: you cant conclude whether a charge is regressive until you know what happens to revenue. E.g. revenue could be used to reduce even more regressive charges elsewhere.

  14. I think part of the heat in this debate arises because many people don’t understand the concept of ‘externality’.
    When you enter a congested road, you suffer delay. That’s your choice—the purpose of your trip is valuable enough to make you willing to put up with it. But you also increase the delay suffered by everyone else. That’s the externality: you’re creating a cost that other people have to wear.
    A road use fee is making you pay for the cost you’ve imposed on other people—just like a factory might have to pay a public authority to cover the authority’s costs in cleaning up pollution that the factory has dumped in the river. Is that so unfair?
    You might say that everyone else is delaying you, too, so it all evens out. But if no-one has to face the cost they impose on others, no-one has any incentive to change their own behaviour, and inefficient over-use of the road (a.k.a. congestion) results.

    1. As long as there is an alternative solution that works and I get a reduction in my car/road tax to offset that cost. This would then even it up a bit and direct it more towards a fair balance and an option. I don’t think the government would like to reduce it by the same amount as the toll as this may reduce their tax take.

      OK, so where does the ever increasing parking costs fit in that AT keep charging? This is another way to penalise the car user without a viable alternative.

      1. But there are alternatives. There are hundreds of thousands of people who choose to get around Auckland by public transport, by bike or on foot every day. There may not be viable alternatives for you, for the specific journeys you have to make, but that’s not the point. It’s not about everyone having to change their behaviour.

        It may be that where you live, where you work, your travel patterns are always going to fit better with driving. What will hopefully happen over time is that more and more people will make choices about where they live and work that reduce their car dependency.

        1. Nick, Your point is meaningless, of course lots of people use PT everyday and I would too if it was a viable option for me. The people who use it are able to use it because of their situation. There are many other hundreds of thousands of other people that are not able to use PT, even though they want to, because of their jobs or they don’t live near a bus route and many other options.

          Just saying that people need to change their behaviour is silly.

          1. “Just saying that people need to change their behaviour is silly.”
            Over and over it is stated here that SOME people need to change and by doing so everyone benefits. Why is everyone so obtuse on this point?

          2. Yes, that’s exactly what I’m saying. There are lots of people who can’t use it because of their situation. That’s fine. Lots of people can. You’ve made choices about where you live, work etc that result in PT not being a viable option for you. If you’re happy with that, great. If not, make other choices.

          3. Nick, so if you aren’t lucky enough to live near a decent PT route, your job is in a far flung industrial area or you have to live further out of Auckland to be able to afford somewhere then its fine that you get stung with this additional cost? Even if you aren’t able to change your behaviour or be in a position to make choices?Sounds a bit rich and a them/us argument.

          4. Ronald, the choice of where to live and work is something that people control in the long run. If we develop a concept for road pricing now, and agree to adopt it in 10 years, then in the intervening period people have a lot of time to adjust how they do things.

            The other thing to keep in mind is that low income households tend to be employed more locally and travel shorter distances to work. There’s also a bunch of low income households that don’t have work, for whom the revenue from road pricing would be a direct saving.

            Finally, because the tolls would also be paid for by tourists, visitors, and commercial visitors, its possible that the dividend associated with the toll would compensate almost the whole costs to households.

          5. You’re taking a hugely middle class view of what people can and can’t change over a given period of time. Over the last decade we’ve seen the prices of entry level accommodation options explode and supply disappear to an almost non-existent level. It smacks a bit of “let them move their cake”. It’s not a case of ‘move where you want, get work down the road’ anymore – people take the jobs they can get and houses where they can find them. If you’re lucky to find them together, then great for you, but to project that expectation across all sectors of society and use it to justify dismissing people’s concerns about being lumped with an extra cost (on top of paying for the network in the first place) is exactly why people find the transport debate so garring – eventually someone is going to tell them that they should either conform to some ideal they can’t afford or make work or suck it up and pay for the people who can.

          6. Are you sure you aren’t taking a middle class view on this butt wizard? House prices (a middle class issue) have exploded over the last decade, but rental price to income has actually been fairly steady, at least until the last year or two. Similarly long distance car commutes into the centre of Auckland at peak time are a fairly middle class activity, compared to shift working, working in outer areas, not working or taking public transport.

  15. I came across Vickrey when we were studying auctions. He had a system to get people to reveal their maximum price. It was used for a while for mobile phone sprectra where a Government might want to find out what someone’s reserve price was. The idea was the buyer paid the next highest price so they could reveal their true maximum because they wouldn’t have to pay it. Simple but clever.

  16. ‘It makes it more expensive to drive..’ Is where a lot of the ‘general public’ stop their argument against congestion pricing. In addition to the “toll revenue” Have there been any studies into monetary gains from reduced petrol consumption for a trip?

  17. The big issue is people look at policy in abstract not holistically.

    ATAP didn’t say the option was increase supply or demand manage it says a successful policy does a little of both.

    So look at this Holistically the road pricing scheme is planned for 2026 in models after most of AMETI, AWHC, CRL and the start of the LRT network in other words there will be options

  18. There is a flaw in the theory:

    We assume government are not greedy. In reality is council want to have more budget to spend. If council put a toll in a monopoly road with no alternative, they could toll as much possible. They can also use bureaucrat policy to limit competition. They would find excuses to not to build another road, and charge their competitors – bus operators crossing fee to keep bus fare high enough that maximise the total revenue.

    Coupled with corruption and money laundering into political party, that can happen. Just like why guns are not banned in united states.

    1. I’m not convinced that’s an issue.

      Simply pass legislation such that the revenue raised from road pricing is returned to residents, as per Auckland Energy Consumer Trust. I’ll consider this option in more detail in subsequent posts.

  19. Second assumption that are not addressed is the social cost of reduced demand.

    The hidden cost would be the low income people living far would not afford to pay the toll and would be cut off from job and education opportunities. Making propery price close to jobs and amenity skyrocket, and houses that are far depreciated in value. So everyone would want to live in area that is close to jobs and good school, driving up house value and rent.

    Poor would forced to move out to live further. As a result rich get access to jobs and education easily, where poor could not afford to pay the toll to best job and education. This process could form a vicious cycle.

    Eventually we would have a huge social inequality issue

    This is similar to the double grammer school effect.

    1. Decongesting the roads will lead to more network capacity (think buses) and more connectivity, not less. Travel time is fundamental in terms of defining a metropolitan area. Greater speed for travel inccrrases the potential metro area size.

      But you are right road pricing will potentially lead to more demand for inner urban living and our planning rules meed to allow for that. However I doubt toad lricing would lead to greater demand for proximity by the wealthy relative to the status quo. Wealthier people tend to value time more than money. Living out in the burbs would cost more money relative to the status quo but would cost less time. So all ekse being equal Id expect the wealthy to disperse and the less wealthy to do the opposite.

    2. kelvin – I think you’re mixing up two issues. The “cost of reduced demand” is considered in the Pigouvian model.

      The costs of social inequality are not. I don’t think the process you’ve outlined is likely – as it depends on how revenue is used.

Leave a Reply