For Whom the Road Tolls

9 Day, 100 Km long traffic jam in China

While freeways don’t technically meet the economic definition of a public good, they often suffer from many of the same symptoms. What happens when something is free to use by everybody that wants to use it? Congestion.

This is extremely evident in China as they are experiencing a traffic jam that has lasted for nine days and extends over 100 kilometers. What is the best way to deal with congestion? The typical response is to expand the size and scope of roadways by adding routes and lanes. Does this work? If it does, why do will still suffer from congestion? If we expand our roads it might temporarily ease frustration, but we’ve all seen our highways quickly fill up again. Now what do we do? Expand again? Surely we can’t expand forever right? There must be a better way.

Why doesn’t road expansion fix the problem? Congestion can be looked at as simple supply and demand. The roads are the supply and our wish to get from point A to point B is the demand. If we simply widen our roads, we are just increasing supply, while doing nothing to alleviate demand. In fact, by supposedly making travel easier by relieving congestion, road expansion basically reduces the marginal cost of a car trip, thus making it appear “cheaper”, thereby increasing demand for driving.

As you can see, expanding the supply of roadways leads to an equal (or more) increase in demand at the same time. How many resources do we waste by paying for construction and maintenance of an ever-expanding system of roads while gaining nothing in return? And this is to say nothing of the enormous opportunity cost of being stuck in traffic for hours on end (or days in the case of China!).

Surely there must be a better way. Why are roads so congested in the first place? Well, quite simply because they are free to use. Technically speaking, we pay for them through taxes, driver’s license requirements and fees, and gasoline and maintenance costs for our cars, so driving is not “free”, but people think at the margins. All that matters is what does the NEXT TRIP cost? Beyond the small cost of gasoline, a car trip is virtually free.

And since everybody that wants to can drive on the road at anytime, people who may not really value driving do so anyway simply because it’s free. So what’s an economist’s solution to this problem? Tolls. A lot of people don’t find the idea of monetizing such things as driving very appealing, but the fact remains that tolls are the most efficient and effective way of allocating scarce resources like road space and people’s time.

Tolls, right off the bat, make substitutes like public transportation, walking or biking relatively cheaper, thus reducing demand for driving. Also, tolls ensure that only those who truly value driving continue to do so; those who are only driving simply because it’s free are immediately weeded out.

Also, tolls can help the flow of traffic not just the quantity. By charging a higher toll during peak traffic hours or when coming into downtown for example, we can more effectively manage traffic congestion. Simply by making some roads more expensive than others to drive on, we can change the incentives that people face and thus change their behavior.

Finally, tolls are excellent because they put revenue back into the roads themselves. That is, tolls pay for the maintenance and construction necessary for their upkeep, thus reducing the burden on taxpayers or ensuring that tax money can be diverted into other areas – for instance public transportation.

The incentive as it exists now is to stretch tax dollars as far as possible so roads often aren’t maintained adequately and needed repairs and maintenance are put off until they become critical. If it costs the same to resurface a road If there are 10 potholes or 1,000 potholes, it only makes sense to wait until there are 1,000 potholes.

Also, there is no market system to decide which roads get priority for maintenance. A city might simply have a list and repair the roads in order, regardless of actual need or demand of those roads. A toll system sends market signals so we can immediately and easily know which roads are being used actively and which roads are in need of repair and in which order. Since drivers are now paying customers, it’s just bad business to have poor quality roads so potholes and other damage will be fixed quickly and effectively.

Toll roads are a win for everybody. They encourage the use of alternate transportation, they reduce congestion, they raise revenue and they ensure high quality roadways. And remember, the important aspect of toll roads are the market signals and incentives created by them. Toll roads do not have to be privatized, for-profit enterprises. They can still be run by the city with all revenues going back into the road system itself, while still reaping all of the benefits.

If you think this isn’t important, or is the wrong tactic, just ask a person caught in that Chinese traffic jam if they would have minded paying a small toll if it meant they wouldn’t be stuck in traffic for nine days.