Monday, July 19, 2010

What To Do About Congestion

Here's some happy hour econ nerdery. You hear a lot of talk about congestion pricing of central city areas, but a simpler way to think about the congestion problem is that of a highway headed from the burbs to the city center. During rush hours, the highway experiences a lot of congestion, meaning that there are too many drivers on the road. More than that, such congestion is an unpriced externality, meaning that absence some sort of intervention, we have "too much" congestion relative to some social optimum. One thing you can do about this is institute congestion pricing, tolling at peak hours specifically so that some people change their route or the timing of their trip. Alternatively, if there are other routes - say a SUPERTRAIN - which don't really experience congestion, you can equivalently subsidize that uncongested route, pricing below marginal cost. In practice, given that the marginal cost of providing an additional person a train trip is about zero, this would actually involve giving trips away or paying people to ride it.

Also, roads don't actually pay for themselves. Neener.