Auctioning Green Time

Eddie, a traveler in a hurry arrives at a traffic light from the East. He would pay up to $18 to save an hour. Sue, a less-hurried casual traveler arrives from the South, she would only pay $6 to save an hour of travel right now. Who gets the green light, who gets the red? Presently this is decided without consideration of how much Eddie or Sue would be willing to pay to save a few seconds or a few minutes. No one has the ability or the authority to make a transaction occur where Eddie can pay a few cents to Sue and get the green light while Sue waits for the light to change. Until recently, this was because it was technologically infeasible, but in recent years, advances in transportation signal technology and real-time wireless vehicle-infrastructure communications have made this once impossible transaction possible. Now it is institutional constraints that prevent this from happening. Traffic signals are in almost all towns, cities, counties, and states publicly owned and managed. Imagine instead that this was a service that private firms would bid to supply.

A new organization, LightSpeed Traffic, has paid your city $100,000 a year for the privilege of managing traffic signals. Instead of this being a cost center for the city, it is now a revenue generator. Why do they do this? A private operator is able to use traffic signals more efficiently from an economic perspective than a public agency, they can obtain revenues from sources such as:

  • Acting as the facilitator of transactions between travelers as described above to minimize weighted travel delay, Eddie pays $18/hour (30 cents a minute) and saves a minute, Sue is compensated at $6/hour (10 cents a minute), and LightSpeed Traffic keeps the difference, 20 cents a minute, to cover the costs of operating traffic signals, paying the city for the franchise, and earning some profit for shareholders. This could scale up, by summing all of the traffic from each approach, and multiplying by their respective values of time. (See for instance Varirani and Ossowski (2012), or Dresner and Stone (2008) for illustrations.)
  • Providing real-time traffic data to a new generation of GPS companies that aim to provide routing information to travelers. By investing in the signals and sensing technologies around the intersection (and at nearby intersections they also manage), LightSpeed has accurate estimates of arterial travel time, and can make predictions about future travel times, data that is extremely valuable to those providing real-time advanced traveler information.
  • Administering red-light running cameras.
  • Advertising at the traffic signal when it is red (as suggested by the linked patent). Like transit companies who sell advertising on the interior and exterior of buses and bus stops, traffic signals have laid out before them a captive audience that might be interested in real-time information, especially information that was customized by place and traveler. LightSpeed has the authority to coordinate advertising with traffic signal timings. Not making the light extra long to force drivers to wait, but simply to use variable message signs to display ads when the light is red anyway, and to benefit travelers by displaying real-time travel information when the light is green.

Presently a few companies operate traffic signals under contract to municipalities, notably in Sandy Springs, Georgia. None yet use signals innovatively as described above.

Obviously this can get quite complex: there may be more than one approaching driver, how do you decide the baseline to estimate vehicle time-saved or time-list by adjusting signal timings, how does this work in networks instead of just isolated intersections.

But scarce resources (like two vehicles seeking to use the same space at the same time) can be allocated in many ways other than arbitrarily or first-come first-serve, to the benefit of all. Sometimes the best solution is a yield sign, sometimes a stop sign, sometimes a roundabout, sometimes a traffic signal, sometimes a grade separation. To be clear, it is not always a traffic signal. When it is a traffic signal, there might be some merits to thinking creatively about the organization and operation of the market that is created by the rationing of time for the benefit of all.