Economics of Congestion

Economic Cost of Cars

1. Congestion

Time lost which has a monetary value
Frustration
Increase in pollution
Increased cost of petrol

2. Pollution

Unleaded petrol has helped reduce lead, but there is still a problem of carbon dioxide and nitrogen dioxide exacerbating global warming
Also in increase in respiratory problems such as asthma

3. Accidents

4. Noise

Bet. ’83 and ’96 road traffic grew by 55% amount of roads by 6%

Existing system of allocating road space

1. Demand for cars

2. Price –petrol, cars, tax, maintenance

3. Income

4. Price of substitutes

5. Price of complements

Socially Efficient Level of Road Use

where Marginal Social Benefits equal Marginal Social Costs

Social Efficiency is at Q2

Solutions To Road Congestion

1. Increase Supply of Roads (CBA)

BUT problems of doing this:

Increases demand further
Not always possible in city centres
Destroys landscapes

2. Govt Provision of Public Transport

3 Regulations and Restriction

a. Bus and cycle lanes
b. One way streets
c. Pedestrian areas
- However these tend to divert congestion rather than solve it
d. Parking restrictions
e. Park and ride schemes

3. Changing market signals

a. Extending existing taxes:

b. Variable tolls
c. Supplementary licenses for congested areas
d. Electronic Road Pricing

4. Electronic Road Pricing

Advantages of Electronic Road Pricing - Blog Post

Problems of Electronic Road pricing

Estimates of external costs difficult to estimate
May be complicated
Cost of installing and operating it may be high
Evasion
If demand is inelastic charges may have to be high
Threat to liberty
Inequality

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