Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill...

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Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Transcript of Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill...

Page 1: Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Externalities from Autos

Chapter 10

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction• Axiom 3: Externalities cause inefficiency

– Solution: Internalize the externalities with pricing (taxes)

– Automobile externalities: congestion, environmental damage, collisions

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Congestion• Nationwide cost of congestion

– Typical commuter spent 47 hours per year in traffic

– Extra gasoline and diesel fuel = $5 billion

– Sum of time and fuel cost = $63 billion (5 times amount in 1982)

• Modeling congestion– Commute distance = 10 miles

– Monetary Cost = $0.20 per mile

– Time cost = opportunity cost of $0.10 per mile

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• Column B: Trip time increases with volume as drivers slow for safe distances• Column C: Private trip cost = $2 monetary cost + $0.10 per minute • trip time• Column D: Increase in time per vehicle• Column E: Increase in total travel time = D • vehicles• Column F: External trip cost = E • $0.10• Column G: Social trip cost = C + F

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Benefits and Costs of the Congestion Tax

• Benefits: Decrease in trip time from reduced volume; Reduction of other taxes

• Cost: Tax for drivers; Lost consumer surplus for former drivers

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Page 10: Externalities from Autos Chapter 10 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Congestion Taxes and Urban Growth

• Will the imposition of a congestion tax cause the city to grow or shrink?

• Congestion tax improves efficiency of urban economy

• Consider two-city region with fixed population

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Practicalities of Congestion Taxes

• Estimates of Congestion Taxes– San Francisco: $0.03 to $0.05 (off peak); $0.17 to $0.65 (peak)

– Minneapolis: average of $0.09; up to $0.21 on most congested routes

– Los Angeles: $0.15 average for peak

• Implementing the Congestion Tax– Vehicle identification system (VIS) allows tracking and billing

– Singapore: $2 for central zone; Electronic pricing for variable charges

– Toronto: Fees on Express Toll Road depend on time of day

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A Congestion Tax Reduces Traffic Volume by

• 1. Modal substitution: switch to carpool, transit

• 2. Time of travel: switch to off-peak travel

• 3. Travel route: switch to less congested route

• 4. Location choices: change residence or workplace, cutting travel distance

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HOV and HOT Lanes• HOV: high-occupancy vehicle lane for carpools

and buses• HOT: high occupancy or toll; pay to use HOV lanes– California HOT lanes: Toll varies with traffic volume

– Responses• Modal substitution: switch to transit, carpool

• Time of travel: Switch to off-peak travel

• Change routes

• Combine trips

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Alternative to a Congestion Tax: Gasoline Tax

• Encourages modal substitution (1) and location choices (4)

• Does not affect time of travel (2) or route (3)

• Gasoline tax applies to driving on uncongested road

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Alternative to Congestion Tax: Transit Subsidy

• Idea is to match underpricing of car travel with underpricing of mass transit

• Encourages modal substitution (1)• Does not affect time of travel (2), route (3),

location choice (4)• Problems– Inelastic demand for mass transit; zero price increases

ridership by 1/3

– Only a fraction of new riders are diverted auto drivers

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Alternative to a Congestion Tax: Eliminate Parking Subsidy

• Subsidies cut drive-alone cost and increase number of cars by 19% (Shoup)

• Eliminate subsidies shifts auto demand to left, decreasing volume

• Evidence of responsiveness

– Ottawa pricing decreased drivers by 23%

– LA pricing decreased solo drivers by 44%

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Road Capacity Decision

• How wide a road to build?• Widen if Congestion Tax Revenue > Road Cost

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Step 1: Two-Lane Road

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Step 2: Four-Lane Road

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Capacity Expansion and Latent Demand

• Wider road has lower time cost and larger quantity demanded

• Figure 10-6: Double width decreases trip cost from $3.60 (k) to $3.00 (f)

• When capacity doubles, why not go from point k to point m?

• Law of demand: Increase in volume partly offsets cost savings from wider road

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Who Pays for Roads?

• Use fees for autos and trucks: gas, oil, auto parts

• Revenue from fees no longer cover cost of roads and highways

• Urban road users come closer to covering costs

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Autos and Air Pollution• Pollution and Greenhouse Gases

– Pollutants: VOC, CO, NOx, SO2 generate smog and particulates

– Transport responsible for 2/3 of CO, 1/2 of VOC, 2/5 of NOx

– Poor air quality exacerbates respiratory problems & causes premature death

– Greenhouse gases from automobiles

• Internalizing pollution externalities

– Economic approach: Tax = marginal external cost

– Monitoring device allows direct charge for emissions

– One-time pollution tax depends on expected emissions, but not mileage

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Greenhouse Gases and a Carbon Tax

• Carbon tax: External cost per ton of carbon = $25 to $100

• Carbon tax of $50 means gasoline tax = $0.13 per gallon

• Extend Figure 10-7: Shift supply curve upward by $0.13

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Motor Vehicle Accidents• Cost of MV Accidents– Annual cost in US: 3.1 million injuries, 40,000 deaths,

$300 billion

– External cost of collisions = 4.4 cents per mile (vs. 10 cents per mile for fuel)

• Accidents and Congestion– Parry: $5 billion per year lost from accident delays

– Quick response policies: cruising tow trucks, loop detectors, helicopters

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Vehicle Safety Policies: Bikers Beware

• Vehicle Safety Act of 1966: Mandated safety features

• Seat-belt and other safety laws didn’t have expected effect– Small reduction in death rates

– Higher collision rates

– Increased injury and death rates for pedestrians and bicyclists

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Accident Costs and VMT Tax

• Impose per-mile tax = Marginal external cost from accidents

• Figure 10-9: Efficiency Gains from VMT Tax

• Perfectly Differentiated: Gain = 0.38 cents per mile driven = $9.4 billion per yea

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Automobiles and Poverty• Recall spatial mismatch discussion from neighborhood

chapter

• Access to a car– Urban low-income families: 27% don’t own a car

– Blacks in central cities: 45% don’t have access to a car

• Importance of a car– Switch from mass transit saves 19 minutes each day and expands

search area

– Car owners are more likely to complete job training program and get a job

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