The Law, Economics, and Policy of Urban Congestion

Christian Iaione
2009 Social Science Research Network  
This paper argues that the best response to the tragedy of road congestion has to rely on market-based regulatory techniques and public policies aimed at controlling the demand-side of transportation congestion. In particular, among these market-based regulatory techniques, economists seem to favor price-based instruments (e.g. taxes and subsidies) over quantitybased instruments (i.e. cap-and-trade schemes). The main argument of this paper is instead that quantity instruments, such as tradable
more » ... , such as tradable permits of road usage and/or of real estate development, can better internalize all the externalities that road congestion is capable of producing. This paper advances also the idea that quantity instruments are more successful tools in addressing urban congestion for two reasons: a) they are more politically viable; and b) they respond better to equity concerns. I. ROADS AS "COMMON GOODS". THE TRAGEDY OF ROAD CONGESTION. Streets and plazas are, by definition, public space. Public space is locus of meeting (i.e. exchange, confrontation, mediation, cooperation and even conflict or face-offs), both physical and virtual, of individual interests which were formed within private spaces. The vanishing of public spaces is determining the vanishing of urban life: the cohabitation, the encounter and the unplanned and not institutionalized confrontation of diverse lifestyles, habits, cultures and stories. This is what has made cities in history the preferred place for cultural development and innovation. The automobile instead projects on the streets the characteristics of «private» life by closing ourselves in their steel bodies. Traffic congestion represents therefore the perfect showcase for the tragedy of the commons. Traffic congestion illustrates why mutuality entails the persistence of an externality. All drivers face indeed the same decision environment. Also, non-coercive solutions are not viable because of the high transaction costs. Negotiations among commuters are in fact impossible. Finally, traffic congestion illustrates the effects of over-utilization of a resource (i.e. roads) that is rivalrous in consumption. Like other tragedies of the commons, resource users inflict losses upon themselves as a group in terms of the ability to use the resource, by lengthening commute times and degrading the transportation resource. But we know that externalities are also imposed upon non-users, the air-breathing public, in the form of pollution. However, traditionally, the political justification for intervention has been to save drivers and protect their commuting. The clamor for solving traffic problems has come more typically from frustrated drivers than from advocates against the imposition of air pollution externality upon the general public. This might explain why, the traditional solution to traffic congestion has been the expansion of roadway capacity 3 . However, this has proved to be a self-defeating strategy. The expansion of 4 roadway capacity reduces transportation costs and this generates new demands by new userssuch as new residential development -that are incentivized by the new roadway capacity 4 . This solution ignores the second-order effects, effects that are easily seen once one appreciates the nature of the externality. Let's take the example of the tragedy of fishing. Even if it were physically possible to respond to over-fishing by stocking the fishery with more fish, this would only attract more fishermen to come in and participate in the tragedy 5 . Hardin suggested potential solutions to commons problems including: privatization; polluter pays; regulation. Hardin categorized these as the "enclosure" of commons. He noted that historically the problem has been first addressed through the use of all resources as commons (unregulated access to all) and then policymakers' attention has been shifted to systems in which commons are "enclosed" and subject to differing methods of regulated use (access prohibited or controlled). Public finance theory has offered a similar explanation of the urban congestion phenomenon. It has argued that with urban congested roads "[t]he use of the available space is distinctly rival and exclusion (the auctioning off or sale of the available space) would be efficient and should be applied. The reason is that the use of crowded space would then go to those who value it the most and who are willing to offer the highest price" 6 . However, Musgrave contended that "such exclusion would be impossible or too costly to be administered" and therefore concluded that such "exclusion should but cannot be applied". 4 See id.; Lior Jacob Strahilevitz, 5 We know now that the difficulty of applying exclusion can be overcome and therefore it is no longer possible to say that roads are an example of public good which causes a market failure and therefore justifies public provision. This paper argues that the best response to the tragedy of road congestion has to rely on market-based regulatory techniques and public policies aimed at controlling the demand-side of transportation congestion. In particular, among these market-based regulatory techniques, economists seem to favor price-based instruments (e.g. taxes and subsidies) over quantitybased instruments (i.e. cap-and-trade schemes). The main argument of this paper is instead that quantity instruments, such as tradable permits of road usage and/or of real estate development, can better internalize all the externalities that road congestion is capable of producing. This paper advances also the idea that quantity instruments are more successful tools in addressing urban congestion for two reasons: a) they respond better to equity concerns; and therefore b) they are more politically viable; c) they are more likely to be well designed; and d) they are able to represent a one catch-all strategy for externalities produced by congestion. Section II of the paper illustrates the costs that congestion imposes on society or, to use a language that economists like better, the negative externalities that road congestion produces. Section III sheds light on the underlying causes of urban congestion. Section IV enumerates regulatory tools that are available to address the negative externalities of urban congestion, while section V outlines possible policy options that should complement the regulatory framework to enhance the chances of success of the chosen regulatory scheme. Section VI proposes a comparative analysis of the different strategies that in different parts of the world have been implemented to address this problem. Finally, section V concludes by stressing the 6 need for further differentiation and experimentation in order to shape a new understanding in the use and management of "common living resources". II. A TRAGIC AND COSTLY RIDE. To better understand the nature of the problem we have to first turn to the analysis of the factors that have contributed to the increasing importance of urban congestion. Americans and almost any developed population drive too much. This does not imply a moral judgment. It is a an economic argument 7 . Dubner and Levitt exemplifies the externalities produced by congestion in the following way "the behavior of Person A (we'll call him Arthur) damages the welfare of Person Z (Zelda), but Zelda has no control over Arthur's actions. If Arthur feels like driving an extra 50 miles today, he doesn't need to ask Zelda; he just hops in the car and goes. And because Arthur doesn't pay the true costs of his driving, he drives too much. What are the negative externalities of driving? To name just three: congestion, carbon emissions and traffic accidents. Every time Arthur gets in a car, it becomes more likely that Zelda -and millions of others -will suffer in each of those areas". Urban congestion is primarily an environmental problem. Automobiles are currently responsible for 75% of hydrocarbon emissions, 45% of nitrogen oxide emissions and 34% of the volatile organic compound emissions in the United States. 8 Also, automobiles contribute 7 Stephen J.
doi:10.2139/ssrn.1357355 fatcat:n7sfsv6ytjfe5dzrvxlhnlremi