« My review | Main | What happiness research means for optimal taxation »
Electronic tolls mean higher tolls
After an electronic system is put in place, tolls start rising sharply. Take two tollbooths that charge the same fee and are in a similar setting — both on highways leading into a big city, for instance. A decade after one of them gets electronic tolls, it will be about 30 percent more expensive on average than a similar tollbooth without it. There are no shortage of examples: the Golden Gate Bridge, the George Washington Bridge and the Tappan Zee Bridge, among them.
“You may be less aware you’re paying the toll,” said Ms. Finkelstein, now an associate professor at M.I.T., “but you’re paying a higher toll than you used to.”
Here is the full story. One thought is the Brennan-Buchanan government rapaciousness angle, layered on top of behavioral imperfections. This result is also why electronically extracted tolls might reduce congestion less than we would expect; they're not sufficiently noticed. Mark Thoma suggests some other interpretations of the data, namely that the electronic toll, by lowering traffic, inconvenience, and queuing to pay tolls, allows the highway authorities to raise the monetary fee to restore the previous net price.
Posted by Tyler Cowen on July 4, 2007 at 07:35 PM in Economics | Permalink
Comments
I vote for Thoma. I'd certainly pay extra to avoid the queues at tollbooths (Delaware used to be especially bad, with mile-long backups). Indeed, I'd prefer to see $5/gallon gasoline with the concomitant reduction in traffic on 66.
Posted by: Ted at Jul 4, 2007 8:31:57 PM
Dunno about US, but over here in M'sia, we have the Touch n' Go system, very much like Oyster in UK, or Octopus in Hong Kong (what's with the naming with sea critters anyway?), except that the TnG availability is more limited and not as well planned as either Oyster or Octopus.
There are some tolls in M'sia that charge a surcharge to road users for using TnG. Similar to car parks - usually charge a 10% surcharge.
Posted by: Chewxy at Jul 4, 2007 10:46:07 PM
I think awareness is definitely an issue - people are more vulnerable to price increases when they're not physically handing over money. The swipe of a card or an RFID tag is so smooth that it can distance the buyer from a full realization of the cost.
I see this in students at my school - they have prepaid dining accounts with a separate account for campus convenience stores. Everything is paid for with a campus ID card, not cash.
The result is that they'll pay $6.50 for a box of cereal and $3.50 for a box of Pop-Tarts because "it's not real money." That's a pretty steep markup, and I promise you they would not hand over $6.50 cash at the grocery store for a box of Cheerios.
Posted by: Mason at Jul 5, 2007 12:48:27 AM
(Un)awareness of price is probably an issue, albeit in my opinion not a huge one. I vote for the "charge what the market will bear" thesis. Electronic tolls equals less congestion equals more willingness to pay equals higher prices eventually.
I assure you that government is fully capable of charging what the market will bear when it suits their purpose.
Regardless, tollways as a rule are still cheap considering the gains from using them, noting as well that there is no such thing as a free highway (nor such a thing as a misnamed freeway for my fellow CA residents).
Posted by: happyjuggler0 at Jul 5, 2007 2:03:29 AM
Well a plausible solution may be that electronic tolling only gets introduced where the market will bear increased tolls to justify the investment? Or that the investment is attracted to the opporunities with the highest potential rate of return - markets which will bear higher tolls. Either way, this would mean that it's the fact that the tolls are lower than the market will bear that attracts electronic tolling. Quite different from "electornic tolling causes toll increases."
Posted by: Dan Hill at Jul 5, 2007 2:09:46 AM
I see this in students at my school - they have prepaid dining accounts with a separate account for campus convenience stores.
I'm familiar with the situation, but two other factors come into play with campus ID-based dining accounts:
1) Their parents have already paid the money into those prepaid dining accounts, so it's not "real money" to them as if it were their own. (Just as people care less about the price of dinner when they're being reimbursed on travel.)
2) Prepaid dining accounts at school often, in my experience, have fairly outrageous refund policies. For example, at Duke University one is only refunded half the remaining balance past the first $100 refunded at the end of the year. In situations like this, unspent money is lost, or at least somewhat wasted.
3) University dining accounts also often have fairly high minimum amounts. Combining this with 1), this means that the university dining accounts cause parents to provide more money for food than if they were paying the children directly.
Of course, this still begs the question of why the students don't get their parents to give them cash directly and skip the middleman. Perhaps parents fear that the money could be spent on non-food items and prefer to limit their children's choices to food alone.
Posted by: John Thacker at Jul 5, 2007 2:41:54 AM
Ted
It's classic microeconomics why a gasoline tax is *not* a good congestion tax. You are not paying a gasoline tax by when you are imposing the congestion on other drivers ie the cost you impose (the time cost) is not related to the tax you pay.
The best situation is where you have both a toll road (or lane) and a free lane, in parallel. Then you can actually determine the time price the consumer is willing to pay.
(toll road companies are clever, though. See the Birmingham bypass in the UK, also the 407 highway in Toronto. They massively weight the tariffs on trucks, because road damage varies as the cube of the axle weighting (double the weight, 8 times the damage). This pushes the trucks onto the free roads, where the public sector/ general taxpayer picks up the tag).)
In fact, gasoline taxes make good government taxes, because of the inelasticity of demand: a high tax incidence doesn't cause a big change in taxpayer behaviour, hence a small welfare loss. See also 'sin' taxes like tobacco and alcohol.
The argument that a gas tax, for example, makes a good carbon tax is likely specious. A carbon tax in electric power generation would have a far higher effect on CO2 emissions (because a power company can substitute in its production mix).
Posted by: anonYmouse at Jul 5, 2007 5:24:27 AM
John Thacker -
Of course, this still begs the question of why the students don't get their parents to give them cash directly and skip the middleman.
Because we won't LET them, the 'we' being college and university administrations. Anyone who lives on our campus must have one of the limited range of prepaid food plans. There are very few ways around it.
Posted by: Michael Tinkler at Jul 5, 2007 7:44:42 AM
I would suggest rewording that last part to "allows the highway authorities to raise the monetary fee to collect the previous net price".
Posted by: Yancey Ward at Jul 5, 2007 9:33:55 AM
As with every generalization, there's always an exception: Illinois, my home state.
We've had an electronic toll system called I-Pass since at least 1998, which means it's been around for almost ten years. While cash tolls doubled in 2005, people using I-Pass are paying the same rate at each tollbooth that they would have paid in 1983.
Posted by: Pete Krawczyk at Jul 5, 2007 10:11:03 AM
Certainly seems to make sense that the bariers to entry in the toll road market would prevent the price from falling toward marginal cost. You would expect anything that raises the demand for these roads to raise prices wouldn't you? The Thoma position seems obvious.
Posted by: josh at Jul 5, 2007 11:19:57 AM
This hasn't been my experience.
The George Washington Bridge, Lincoln Tunnel and Holland Tunnel into NYC have been $6.00 in the cash lanes for quite awhile. With E-ZPass its $4 and $5 off-peak and on-peak respectively.
Even if you are using E-ZPass or some other ETC, which is still not a lot of drivers, the cash toll is posted for all to see. And most people generally commute along the same route every day. Plus I would presume people pay there bill and would notice increases just like any utility bill. So I fail to see how an electronic system in its current form would make it significantly easier to raise tolls.
Posted by: asiequana at Jul 5, 2007 3:37:27 PM
Tolls on California bridges have risen as much for people paying cash as for those who aren't. For that matter, the toll on the Golden Gate Bridge is lower for people with FasTrak (the electronic toll system) than for cash customers.
The FasTrak usually saves time, though the relative scarcity of FasTrak lanes negates most of that advantage during commute hours.
Posted by: Anthony at Jul 5, 2007 3:39:07 PM
Perhaps the cost to run a road relative to the toll income and the decision to go to electronic tolling are not independent.
For example, in the case where a road whose costs to run relative to the toll income, the authority managing may be more likely to investigate methods to lower running costs, e.g. by moving to electronic tolls.
If electronic tolling becomes a signal for expensive to run roads, it's not surprising if their presence raises the probability of future toll increases.
-Kevin
Posted by: Kevin Postlewaite at Jul 5, 2007 3:44:43 PM
Perhaps this is a question of price stickiness similar to the coca cola machines of old. It is not unreasonable that cash tolls raise their rates slowly simply because small increases in tolls would be hugely uncomfortable for toll payers and toll chargers. (imagine paying a toll of 19 cents: you would need to use at least 6 coins to pay exactly). Imagine the queues if people had to count out tolls that were difficult-to-pay cash amounts.
Electronic tolls of course do not have this problem.
Posted by: Sebastian Villarreal at Jul 5, 2007 5:15:26 PM
It's the same phenomenon as tax witholding.
Posted by: nick at Jul 5, 2007 6:38:29 PM
I'm with Nick, I think it has a lot to do with price perception. I recall a few studies regarding spending in cash vs debit cards. If I remember correctly people spent more using a debit card when compared to cash. I think there is something similar involved with VAT vs a sales tax.
Posted by: Nathan at Jul 5, 2007 7:09:02 PM
2moons dil
2moons gold
buy 2moons dil
2moon dil
cheap 2moons dil
Posted by: aion kina at Mar 19, 2009 10:10:49 PM
Mabinogi online gold
Mabinogi money
Mabinogi Gold
cheap Mabinogi gold
buy Mabinogi gold
2moons dil
2moons gold
buy 2moons dil
2moon dil
cheap 2moons dil
Flyff gold
flyff Penya
flyff money
buy flyff penya
cheap flyff penya
cheap flyff gold
aion gold
buy aion gold
cheap aion money
aion money
cheap aion gold
Dofus kamas
buy dofus kamas
cheap kamas
dofus kama
dofus gold
dofus money
Knight Online Gold
Knight Gold
Knight Noah
Knight Online Noah
Posted by: aion at Jul 8, 2009 9:33:45 PM
