Category Archives: road pricing

Road Pricing in the United States

A special issue of  Research in Transportation Economics — Volume 44, Pages 1-70 (June 2014) Road Pricing in the United States, edited by Mark Burris, just came out. We have a paper in here, but the others are interesting as well. This is behind a paywall, so if your University doesn’t subscribe, you can’t get it directly, but I am sure individual authors would be happy to send copies, and pre-prints may be online.

Does road pricing affect port freight activity: Recent evidence from the port of New York and New Jersey
David A. King, Cameron E. Gordon, Jonathan R. Peters

The feasibility of modernizing the Interstate highway system via toll finance
Robert W. Poole Jr.

HOT or not: Driver elasticity to price on the MnPASS HOT lanes
Michael Janson, David Levinson

Using vehicle value as a proxy for income: A case study on Atlanta’s I-85 HOT lane
Sara Khoeini, Randall Guensler

The impact of HOT lanes on carpools
Mark Burris, Negin Alemazkoor, Rob Benz, Nicholas S. Wood

Theory versus implementation in congestion-priced parking: An evaluation of SFpark, 2011-2012
Daniel G. Chatman, Michael Manville

A framework for determining road pricing revenue use and its welfare effects
Timothy F. Welch, Sabyasachee Mishra

HOT or Not: Driver Elasticity to Price and Alternative Pricing Strategies on the MnPASS HOT Lanes

Congratulations to Michael Janson for successfully completing and defending his Master’s Thesis HOT or Not: Driver Elasticity to Price and Alternative Pricing Strategies on the MnPASS HOT LanesJansonBoyce HotOrNotPoster

The Minnesota Department of Transportation (MnDOT) has added MnPASS High Occupancy Toll (HOT) lanes on two freeway corridors in the Twin Cities. While not the first HOT lanes in the country, the MnPASS lanes are the first implementation of road pricing in Minnesota and possess a dynamic pricing schedule. Tolls charged to single occupancy vehicles (SOVs) are adjusted every three minutes according to HOT lane vehicle density. Given the infancy of systems like MnPASS, questions remain about drivers responses to toll prices. Three field experiments were conducted on the corridors during which prices were changed. Data from the field experiments as well as two years of toll and traffic data were analyzed to measure driver responses to pricing changes. Driver elasticity to price was positive with magnitudes less than 1.0. This positive relationship between price and demand is in contrast with the previously held belief that raising the price would discourage demand. In addition, drivers consistently paid between approximately $60-120 per hour of travel time savings, much higher than MnDOT’s value of time (VOT) of $15/hr. Reasons for this include the value drivers place on reliability, a misperception about the actual time savings and that MnPASS users have a greater VOT than the average driver. Four alternative pricing strategies are then proposed. These pricing strategies were tested using a HOT lane choice model based on previous research. The share of transponder owning SOVs using the MnPASS lane was measured against price producing positive elasticity values at lower prices and negative elasticity values at higher prices. MnPASS lane usage rises with price at lower tolls due to the increased time savings benefit but is eventually outweighed by the price, causing the lane share to decrease at higher tolls.

Michael is now working at SRF.

Why we should raise gas taxes now, but implement road pricing soon.

Ed Kohler @The Deets doesn’t seem to like tolls, he asks: What Should be Done if Gas Taxes Aren’t Raising Enough Revenue? : (He is responding to my interview on Jim Pethokoukis’s podcast.)

“One thing that confuses me about transportation funding is the idea that raising gas taxes is politically impossible, but creating new forms of transportation taxes like a tax on every mile you drive would be feasible. To me, the raising gas taxes seems far more efficient since all of the systems are already in place to collect the taxes. “

Why we should raise gas taxes now:

  1. Road quality is not where we would like it and will only get worse if insufficient revenues are raised to maintain and reconstruct existing infrastructure, as existing roads continue to age and deteriorate.
  2. Raising gas taxes is more administratively efficient in the short run than implementing tolls, especially tolls requiring lots of infrastructure. It presently has lower collection costs. See [1], [2]. There is no guarantee that will remain true as new technologies change the cost of collection.
  3. The gas tax is an ok environmental tax. There are better environmental taxes (but at $0.11/gallon for the carbon price of $43/tC, this seems too small to matter from a demand perspective). The gas tax is a terrible congestion tax however, as it does not differentiate by place, or more importantly, time of day. Yes idling consumes slightly more fuel than engine off, but newer engine technologies are making idling more efficient.
  4. Currently roads are only partially funded with gas taxes, general revenue is a major source. This charges non-users as well as users, and sends no signal about the appropriate amount of roads that should be built or how scarce road space should be allocated.
  5. So, states can (and should) raise the gas tax before using property taxes or general revenue to pay for roads. (For marketing purposes, the cynical politician should of course call it a wholesale tax, like Virginia just did. Thus they are taxing refiners instead of consumers, right? (However making the tax a percentage of sales price rather than of volume increases volatility of revenue).

We do need to be careful that the money gets spent on maintaining the valuable parts of the existing system, not building wasteful new facilities. There is a serious lack of trust in existing institutions.

Why we should implement road pricing soon:

  1. Congestion is a problem. It is not getting measurably worse, but it is not obviously getting better. Even if reduces in the aggregate, it won’t disappear to zero anytime soon. All of it is unnecessary. But behold, there is a theoretically sound and empirically proven solution: congestion pricing.  Almost all economists like congestion pricing. The arguments for it are fairly straight-forward. Congestion delay is a dead-weight loss. If instead of charging time, you charged the monetary equivalent of the marginal cost of travel (the delay you impose on others), that loss could be eliminated. If you took the  toll revenue raised by allocating demand in an efficient way, and used it  to maintain existing infrastructure, and returned the surplus to people (e.g. through lowering some other tax or providing an annual road dividend, (make the rebate as progressive as you like, it doesn’t matter from a transportation perspective)), society as a whole would be better off. There is a huge literature on this. (Sadly, congestion pricing cannot be achieved with only gas taxes (unless we required really small gas tanks in cars that lasted only 15 minutes or so … a truly bad idea). Something that charges by time and place is required. That is a toll of some kind.)
  2. Emissions continue with the Internal Combustion Engine. If gas taxes are replaced with something that is more effective in reducing road use (for an equivalent amount of revenue), it will result in lower overall VMT and thus less gasoline consumption and lower emissions. (And if it results in less congestion, less fuel sales from the time spent idling or driving inefficiently in stop-and-go conditions). Nevertheless, the marginal effect of the gas tax on demand is relatively small. We can see with the huge swing in gas prices in the last decade, VMT was essentially flat. Anything that made the costs of travel more salient would reduce demand. This depends on the design of the system, invisible systems have low saliency. An in-vehicle taximeter would be highly salient.
  3. Electrification is coming. At some point, electric vehicles will become non-ignorable share of free-riders on the road network. EVs do not require less road pavement or cause less congestion than similarly sized ICE-vehicles. See [3]. The rate of electrification is unclear [4], but given federal fuel efficiency requirements, it is not implausible that most new vehicles will be EVs or EV-ICE hybrids in a 10 year time frame.
  4. Road pricing would facilitate charging more for scarce resources (weak bridges, thin pavements, travel at peak times) and more for more damaging users (e.g. heavy trucks on few axles).

The politics:

  1. In most countries with higher gas taxes, those high gas taxes are not hypothecated, i.e. they are not spent on transportation the way they are in the US (e.g. Australia). So the high gas taxes are independent of road maintenance. Some countries (France, Italy, Japan, China) toll their motorways. Some don’t. Some toll trucks (e.g. Germany). The gas taxes in these countries go to general revenue. The tie between usage and payment in the US is to be commended and should be extended, not weakened. It sends better signals if roads (and other transportation) are paid for directly by beneficiaries. (Feel free to tax other externalities separately
  2.  Some organizations in favor of tolling/pricing in addition to conservative and libertarian think tanks include the decidedly un-libertarian  Environmental Defense and Sierra Club, while the politically neutral GAO says pricing could be more equitable and efficient. The argument will be about the appropriate toll to set, but the same conservative road pricing-favoring organizations that are condemned for sponsorship by oil companies also publish reports that advocate road privatization, and we know what will happen to prices if roads are private — they will go up, which will lower travel (and fuel) demand. (That is, profit-maximing tolls are higher than welfare maximizing tolls.) (Whether this is good or bad is another debate).
  3. Will government run, politically driven agencies be able to implement tolling? The jury is of course out, but the evidence is that it is hard, or we would see it more widely. Similarly if raising gas taxes were politically easy, they would already be higher. Minnesota’s gas tax was raised in 1988 and again in 2008, about once every 20 years. The federal gas tax was last raised in 1993 (20 years ago). Congestion pricing in general is more popular after it is implemented than before. There are many experiments going on, trying to figure out how to achieve acceptability. I like the road utility myself.

I have discussed some of the difficulties of implementing pricing before. But eventually, we will have electrified the fleet enough, we will be annoyed enough with congestion, the damage wrought by heavy vehicles, and so on, that we will do something else beyond (or in addition to) the gas tax. We will also have given up the last vestiges of concerns about privacy, and the cost of the technology to implement such a system will have dropped.  Hopefully we will phase it in gradually, to avoid the potential catastrophe of a Big Bang rollout.

We need to think not only about what will (or should) happen tomorrow, but over a two-decade period.

7 Ways to Reduce Transportation Waste

Some 20 years ago a book came out “Stuck in Traffic” by the brilliant Anthony Downs. One of his key points was the “Iron Law of Congestion”, sometimes called “Triple Convergence”, and now called “Induced Demand” which basically said if you expand a road, the extra capacity gets used up by people switching routes, modes, and time of travel. We might also add other effects of road expansion include changing destinations for non-work trips (making longer trips), making trips that would otherwise be foregone, and even changing jobs and houses, as well new development. While Downs did not discover this idea, (e.g. Lewis Mumford had said something similar) he popularized it.

Since Downs wrote the book in 1992, remarkably little has changed in how we travel. Not nothing of course, (travel rose for a few more years and has leveled off overall, and dropped in more recent years on a per-capita basis) but a lot less than you would expect given the changes in information technologies over the same period. No-one is satisfied with this status quo. Everyone is crying out for something different. We believe we can do better than daily congestion, excess pollution, devastating crashes, and all the other ailments associated with our existing transportation systems. In recent posts I identified peak travel, and made a speculative scenario of how traffic might disappear “on its own”. But of course, that won’t happen everywhere, and there are lots of things we can do to manage better.

Roads are perhaps the slowest changing technology. Once laid, they are difficult to move. Parts of the Appian Way, from two millennia ago, are still in use. Famously London could not change its street grid after the 1666 London Fire destroyed most of its buildings, despite an able plan from Sir Christopher Wren.

We can think of transportation as a layered system. There is the earth, on top of which are rights-of-way, within the rights of way are pavements (themselves layered). On the pavements are markings denoting lanes and directions. Above these are traffic control devices like signs and signals. Only then do we get to services, people driving their vehicles, trucks carrying freight, passenger buses, taxis, bicycles, pedestrians, etc. all riding on the layer of roads.

To the dismay of many transportation planners and engineers (many of whom got into the field to build things), the physical layer of the surface transportation network in the United States is largely complete. The projects that are left are projects that were too expensive to build the first (or second, or third) time, (much like the Second Avenue Subway in New York). These Zombie projects do not die, while construction is essentially irreversible, non-construction is easily reversed. In the end though, these are tinkering at the edges. Given the small amount of new construction, most travel 20, 30, or 50 years from now will be on roads that already exist.

Until we go airborne for short trips, we are highly constrained. As the world gets more developed, building new roads is progressively more expensive. The world adapts to the infrastructure that is provided, and builds as close to the right-of-way as possible, making expansion that much more difficult.

While we have scarce right-of-way (scarce in that it is limited, and finite, and at times fully utilized given the applied technologies for its use). We lack time. We have limited energy. This waste has both supply and demand aspects. Yet collectively we don’t do relatively easy things that would reduce the waste of these scarce resources.

  1. Most roads are under-utilized most of the time. We have plenty of capacity outside the peak.
  2. Most of the pavement is unused even at peak times, there are large gaps between vehicles both in terms of the headway between vehicles [1] and the lateral spacing between vehicles (we drive 6′ wide cars in 12′ lanes, often on highways with wide shoulders).
  3. Most seats in most cars are unoccupied most of the time.
  4. Most cars are carrying around far more weight than required to safely move the passenger. While bigger cars tend to be safer for the occupants, they are less safe for non-occupants. This is an inefficient arms race.
  5. Most roads are so wide we use them for storage of vehicles most of the day.
  6. There is a tremendous amount of excess delay at traffic lights, especially at off-peak periods, wasting time (and space).
  7. Most trips during peak periods are not work trips and have temporal flexibility, yet these trips travel in the peak because they are underpriced.
  8. Most trips produce negative externalities (pollution, congestion, noise, risk of crash) in excess of the price paid by their driver. They produce so many of these externalities because they don’t pay for their full cost.

So instead of expansion, we should instead think about ways to use that scarce right-of-way (and our scarce time and energy) more efficiently.

  1. Where there is congestion, we should price roads to encourage use in the off-peak and discourage use in the peak. This revenue should be used for the operations and maintenance of roads and should largely replace existing funding sources (fuel taxes, vehicle taxes, property taxes). Prices need to be systematic, not just on specific routes, to maximize system efficiency. We should avoid having a random set of underutilized toll roads, while free roads remain congested.
  2. Pollution and noise and crash risk should have their own externality charges.
  3. We should encourage narrower vehicles and, for instance, provide two six-foot lanes for narrow vehicles in place of one twelve-foot lane where we can, and promote use of driverless cars so that cars can use less space. Lane widths are standard, and changing them would require changing standards. Ultimately we should move to a model where we don’t need pre-defined lanes, but rather have vehicles move as near each other as possible without colliding, such as we do when walking in crowds.
  4. Cars should be lighter. If all cars were lighter, everyone would be safer. The greatest risk is when big car/truck meets small car. In particular we should encourage use of neighborhood cars that are specialized for local, lower speed travel. This may or may not require private vehicle ownerships as opposed to vehicle rental/sharing.
  5. We should promote technology to enable real-time, ad-hoc ride-sharing (with compensation for the ride provider) to better utilize excess capacity within vehicles. (In many places the compensation is illegal, as it looks and smells like a taxi, which are highly regulated).
  6. We should narrow up roads where we can, and use strategies so that people can share more cars, so we need fewer of them, so we don’t need to spend as much road space for vehicle storage. Road widths are again set by standards, often determined by the fire department (which does not want to back up their trucks).
  7. We should be able to eliminate many traffic signals with appropriate use of roundabouts (and later with driverless vehicles). Given the vacant space available on roads, if vehicles and inter-vehicle communications were better, we should be able to arrange real-time coordination of vehicle movements and have as a goal eliminating almost all stopped delay at undersaturated intersections that are today signalized. Pedestrian/vehicle conflicts might still remain, and require controls.

This is hardly a complete catalog of what we can and should do, but I hope the key point, there is plenty of pavement already, we just need to use it more wisely, comes through.

==

[1] If we follow the “2 second rule” (2 seconds between two successive vehicle’s front bumpers) (or 1800 vehicles per hour), at 60 mph we have a vehicle density of 30 vehicles per mile, or 176 ft per vehicle. Obviously with congestion, we are wasting time because we don’t increase throughput and we decrease speed, though we increase density. Vehicles are typically 26 ft, so we are using about 7 vehicle lengths for every vehicle we are moving at free flow speed near maximum stable throughput on a pipeline section without a bottleneck.

Prices are an Information Technology

We talk about introducing information technologies into surface transportation. That is what “Intelligent Transportation Systems” are all about. But the most important information technology is price. Price is not itself a good, but rather a technology that gives you information about the value at which people will exchange one good or service for another. The price tells you that you will have to give so many dollars in exchange for a widget, or the right to ride the bus, or to travel across the bridge.

The first problem in surface transportation in advanced economies (where the network and vehicles exist and are widespread) is who gets to use which piece of infrastructure at what time (the problem of allocation). The second is the problem of paying for the maintenance of existing facilities (the problem of funding). The structural feature at the core of these problems is the lack of an apparent price which is sensitive to time of day, location, and costs.

When travelers drive an untolled road in the US, they still have a small price to pay: their time and the monetary costs of operating an automobile, including gas taxes. But those prices contain very little information, and do not represent the costs they impose on the system (their marginal costs). The cost of fuel does not reflect the cost of traveling during the peak (except to the extent that fuel consumption is higher in stop-and-go traffic), or the cost of traveling on costly or critical facilities. The price travelers face is not real-time or real-space, but rather an abstracted expectation of average costs (assuming drivers pay their full costs, which they don’t off the freeway, or even on the freeway when you account for externalities, in the US).

We should move prices into the modern era, where they vary in time and place, to reflect the real costs of travel, just as other goods have prices that vary with demand. When demand is up for gasoline, or houses, the prices rise. When supply rises, prices fall. When demand falls or supply rises, the price falls with it. The price represents the matching of consumer’s willingness to pay (to the extent the supplier has monopoly powers) with supplier’s willingness to accept (assuming competition in the marketplace). This can simultaneously solve both the problem of allocation and reduce if not eliminating congestion, and the problem of funding.

HOT Lanes Are Even More Popular When They’re Expensive – Eric Jaffe – The Atlantic Cities

Eric Jaffe at Atlantic Cities summarizes some of our recent research:

HOT Lanes Are Even More Popular When They’re Expensive:

“Everyday, sometimes twice a day, commuters in the increasing number of U.S. metro areas with a HOT lane ask themselves that timeless question: to pay, or not to pay. How they answer depends on the toll price, which charges single-occupancy cars for HOT access based on congestion levels. Logic suggests that as the toll goes up, fewer drivers would fork over the money — for the same reason we sit coach on a plane once we see the price of first-class.

But in Minnesota, at least, HOT lane prices are having the opposite effect. As the cost of HOT lanes on Interstates 394 and 35 went up, more commuters were willing to pay the toll. That’s the rather counter-intuitive finding that emerges from recent research by Michael Janson and David Levinson of the University of Minnesota [PDF]:”

This positive relationship between price and demand is in contrast with the previously held belief that raising the price would discourage demand. …

HOT or Not: Driver Elasticity to Price on the MnPASS HOT Lanes

HOTorNOT

Recent working paper:

The Minnesota Department of Transportation (MnDOT) has added MnPASS High Occupancy Toll (HOT) lanes on two freeway corridors. While not the first HOT lanes in the country, the MnPASS lanes are the first implementation of road pricing in Minnesota and possess a dynamic pricing schedule. Tolls charged to single occupancy vehicles (SOVs) are adjusted every three minutes according to HOT lane vehicle density. Given the infancy of systems like MnPASS, questions remain about drivers’ responses to toll prices. Three field experiments were conducted on the corridors during which prices were changed. Data from the field experiments as well as two years of toll and traffic data were analyzed to measure driver responses to pricing changes. Driver elasticity to price was positive with magnitudes less than 1.0. This positive relationship between price and demand is in contrast with the previously held belief that raising the price would discourage demand. We hypothesize this is because drivers use price as a signal of time savings. In addition, drivers consistently paid between approximately $60-120 per hour of travel time savings, much higher than the average value of time. Reasoning for these results is discussed as well as the implications these results have on the pricing of HOT lanes.

This paper is part of Michael Janson’s Master’s Thesis.

Incremental Accessibility Benefits and HOT Lane Subscription Choice

MnPASSAccountsPerHH

Recent working paper:

This paper presents the results of an investigation into the factors contributing to toll lane subscription choice using data from the MnPASS HOT lane system operated by the Minnesota Department of Transportation. A binomial logit model is estimated which predicts the likelihood that a household will have a subscription to the MnPASS system based on aggregate characteristics of the surrounding area. Variables in this model include demographic factors as well as an estimate of the incremental accessibility benefit provided by the MnPASS system. This benefit is estimated using detailed accessibility calculations. The model achieves a pseudo-r-squared value of 0.634, and analysis of the results suggest that incremental accessibility benefits play a statistically and practically significant role in determining how likely households are to hold a toll lane subscription.

Bloomberg does the hard sell

Mayor Bloomberg of New York is doing the hard sell to get congestion pricing approved, along with some help from FHWA (Mary Peters) Urban Partnership Agreement. The Selling of Congestion Pricing –
Everyone thinks the losers will be commuters priced off the roads. But consider the poor parking garage owner, who will now have to lower their rates to attract back customers. I wouldn’t be surprised to see parking prices drop almost as much as congestion charges rise, meaning only “through trips” (New Jersey to Brooklyn, Queens, or the rest of Long Island) would be truly priced off the road.