Managing Demand with Prices
Traffic congestion frustrates millions of motorists daily and imposes economic costs in the 50 largest urban areas in excess of $70 billion annually. As mentioned earlier, however, adding highway capacity to allow free-flow traffic is problematic for environmental and other reasons. Economists have long argued that some direct-pricing mechanism for highway use would help allocate demand on existing facilities more efficiently by shifting some road users to off-peak hours, when capacity is usually more abundant. As everyone who drives in peak periods knows, too many people are trying to travel within too limited a space at these times.
In the private sector, such peak demand is managed through pricing. At least until recently, however, proposals for peak-period pricing of road use have been dismissed as impractical because of the difficulty of charging users efficiently. Today, electronic toll collection has made it possible to charge users varying prices with considerable efficiency without invading privacy. Now that variable pricing of road use has become technically feasible, the debate has shifted to questions of effectiveness and political acceptability.
Economic theory and analytical modeling predict that variable pricing would reduce congestion. The effect can be illustrated by the example of a freeway on which motorists encounter stop-and-go travel. In such a situation, a reduction of only a few percentage points in the number of motorists in the traffic stream can return traffic to free flow. Of course, most motorists would be reluctant or unable to shift their travel times, but those who could adjust their work schedules or be flexible in other ways could shift to off-peak periods, and the result would be net economic and environmental benefits to society. Those traveling in peak periods would have to pay considerable fees, but these revenues could be used to provide more capacity or to compensate those groups hurt economically by such a policy.
The committee charged with investigating this issue considered whether the public would find congestion pricing acceptable (Special Report 242: Curbing Gridlock: Fees to Relieve Traffic Congestion; TRB/CBASSE 1994). Although road users pay fuel taxes to support the costs of building and maintaining roads, most people view roads as free. Pricing may also be viewed as unfair to the poor, though compensation mechanisms are feasible. Since passage of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), federal policy has reflected appropriate caution with regard to advancing alternative pricing concepts by encouraging and funding experimentation at the local level, an approach the committee supported and recommended. Many jurisdictions are considering or engaging in experiments such as pricing underused high-occupancy-vehicle lanes, offering discounts on toll facilities for off-peak travel, and increasing parking fees. Preliminary results of these efforts are encouraging and may help gain public acceptance for wider application of such approaches. Although still far from being realized in the mainstream of transportation programs, road pricing may yet become a tool for managing an ever-growing demand with a limited supply.