Roads, Oil Spills, and Externalities

Samuel Staley's picture
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Planners are quick to criticize roads and highway investments for the vast sums spent to build, operate and maintain them, often questioning the value of these subsidies. Recently, on a planning list-serve, these subsidies were labeled an "external cost" of automobiles, but they are not. I thought it might be a useful time to make this point more broadly because a crucial justification for public intervention in a market economy is to correct for market failures, including times when external costs exist.  

Furthermore, fellow Interchange blogger Michael Lewyn provided his own contribution on the concept of externalities ("Externalities Meet Externalities"), and, with all due respect, I think he has confused a few important distinctions.  

Defining what is meant by an "externality" or "external cost" is important because it creates a set of parameters for policy intervention. Following the conventional definitions used in economics, political science, public administration, and public policy analysis, an externality exists when a third party bears the unintended cost (or benefit) of a transaction or action even though they weren't part of the exchange. (My standard reference is the survey Dennis Mueller's Public Choice III, see page 25.) Because costs are born involuntarily, policy intervention is justified to mitigate or correct the harm. While external benefits are probably more common, they don't get much attention because they generally don't pose serious problems that must be addressed through public policy. 

This brings me to the main focus of this post: Are the taxes levied to fund roads an external cost? No. For the most part, they are not costs imposed on unwilling third parties. Rather, roads are usually classified as public goods, which are products or services that are socially valuable but cannot (or will not) be provided privately. The subsidies used to provide roads are the explicit costs of providing these public goods for society's benefit in the same way that general taxes are used to support the court system. In fact, most communities vote on property and sales tax increases to fund roads, and they approve these quite often. Thus, subsidies to build, maintain, and operate roads are not properly called an external cost, or even an external effect, let alone an unintended effect, of automobile use. Since the vast majority of travel is on roads, any third party external costs as they relate to financing these transportation systems are likely very small. 

A side bar is whether public funds on roads are costs "externalized" by users to the larger public through taxes and other subsidies. I'll address that in a Part 2 to this discussion that will appear next week.  

Let's take the discussion of externalities a step further. In the same list-serve discussion, the BP Gulf Oil spill was called an external cost of our reliance on the automobile. Once again, the key question is: Why pays the cost? While the Oil Spill is a terrible environmental tragedy, that fact alone doesn't qualify it as an externality, or an external cost to using oil as an energy source. Nothing was inevitable about the oil spill, nor was it a necessary effect of the technology used to drill for the oil. Indeed, in principle, PB had "fail safe" technologies in place to prevent it. The spill may have been the result of negligence or rational risk analysis, but its potential was foreseeable, and to some extent anticipated, by the public and private sectors. 

More to the point, to the extent BP pays for the full costs of the environmental and economic impact of the spill, the costs will have been internalized and by definition will not be an external cost. Only the portion of the cost born by third parties (presumably non-oil consumers) would be considered an external cost. The extent of this effect has yet to be determined, so it's not a foregone conclusion that the effects will be an external cost.

This is fundamentally different from air pollution from automobiles where the environmental costs were not captured or accounted for in automobile production or use. Public regulation was used to mitigate these effects, and the costs were only indirectly internalized by users and beneficiaries.  

Similarly, policy choices are not properly classified as external costs either. Military expenditures to protect Middle East oil are policy choices, not externalities as defined by most social scientists.  

Of course, other justifications for public regulation exist. Many of them are rooted in the traditional of planning. But planners should be aware that terms often carry very specific meanings and can be grounded in rich intellectual histories. When used outside those contexts, confusion can sully public discussion irrespective of the merits of the case being made.

Sam Staley is Associate Director of the DeVoe L. Moore Center at Florida State University in Tallahassee.

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Todd Litman's picture
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External Costs of Automobile Travel and Fuel Consumption

I believe that Dr. Staley significantly misrepresents the concept of “external cost” and its implications for policy and planning decisions.

A fundamental principle of economics is that a market is most efficient if 'prices' (what consumers directly pay for a good) reflect full costs, unless a subsidy of that consumption is specifically justified. External costs (costs not incorporated into prices) are a market distortion that results in economically excessive consumption (more consumption of costly goods than consumers would choose in a more efficient market) and unfair economic burdens. Motor vehicle use imposes significant external costs (as described in excruciating detail in my report, Transportation Cost and Benefit Analysis at www.vtpi.org/tca), including roadway costs not borne by user fees (fuel taxes and road tolls), parking facilities financed by businesses and governments, and uncompensated costs resulting from the production, importation, distribution and burning of petroleum (http://www.vtpi.org/tca/tca0512.pdf ).

Currently, less than half of U.S. roadway costs are financed through user fees (see Analysis Finds Shifting Trends in Highway Funding: User Fees Make Up Decreasing Share Subsidy Scope, at www.subsidyscope.com/transportation/highways/funding), and an even smaller share of parking costs are charged directly to users. As Staley points out, the portion of oil spill cleanup and damage costs borne by oil companies is an internal cost incorporated into fuel prices, but there are unquestionably huge uncompensated costs to people and the environment from oil spills, plus other huge economic and environmental costs of petroleum production and importation. As a result, when consumers make decisions, such as how to travel and where to live, they are not confronted with the full costs of their decisions, resulting in economically excessive automobile travel and economically excessive sprawl.

Described differently, when automobile costs are external, consumers do not receive a fair share of the savings that result when they choose a cheaper option. For example, a U.S. commuter who shifts from driving to an alternative mode generally receives little savings, just a few cents per mile in avoided fuel costs; they receive nothing for the reduction in traffic congestion costs imposed on other road users, road and parking facility cost savings, reductions in accident risk, or the economic and environmental benefits from reduced petroleum consumption and pollution emissions.

Staley is wrong to suggest that these external costs are efficient or equitable simply because most residents drive (“Since the vast majority of travel is on roads, any third party external costs as they relate to financing these transportation systems are likely very small”). Even if most people own and use automobiles, underpricing of roadway costs forces people who drive less than average to subsidize the costs of those who drive more than average. Since vehicle travel tends to increase with income, these cross-subsidies also tend to be regressive.

Staley is wrong to suggest that market distortions become efficient and equitable simply because they are approved by voters. Voters may lack efficient options, be ignorant, or be selfish and therefore willing to choose an inefficient and unfair solution by which politically powerful voters impose costs on those less politically influential (which tends to include non-drivers, such as children, poor people, and immigrants).

I agree that planners should learn about concepts such as external costs and subsidies. They more we understand these issues the greater the justification for pricing reforms, such as more direct user charges for road and parking facilities, higher fuel prices, and planning policies that favor more diverse transport system.

For more information see:

Sacrificing Pelicans To Petroleum Gods (http://www.planetizen.com/node/44891 ).

David Coady, et al. (2010), "Petroleum Product Subsidies: Costly, Inequitable, and Rising," International Monetary Fund (www.imf.org/external/pubs/ft/spn/2010/spn1005.pdf )

Mark A.Cohen (2010), "A Taxonomy of Oil Spill Costs—What are the Likely Costs of the Deepwater Horizon Spill?," Resources for the Future (www.rff.org/rff/documents/RFF-BCK-Cohen-DHCosts_update.pdf)

ELI (2009), "Estimating U.S. Government Subsidies to Energy Sources: 2002-2008," Environmental Law Institute (www.elistore.org/Data/products/d19_07.pdf )

Paul N. Leiby (2007) "Estimating the Energy Security Benefits of Reduced U.S. Oil Imports," Oak Ridge National Laboratory (http://pzl1.ed.ornl.gov/Leiby2007%20Estimating%20the%20Energy%20Security... )

Todd Litman (2009), "Socially Optimal Transport Prices and Markets," VTPI (www.vtpi.org); at www.vtpi.org/sotpm.pdf)

Todd Litman (2010), “Resource Consumption Externalities,” Transportation Cost and Benefit Analysis, Victoria Transport Policy Institute (www.vtpi.org/tca/tca0512.pdf )

Todd Alexander Litman
Victoria Transport Policy Institute
www.vtpi.org
"Efficiency - Equity - Clarity"

The big picture

The level of gas taxes in Europe are set high enough to compensate for all the externalities that the experts have been able to identify (and then some); and their transit subsidies are much higher, and yet their rate of road and auto use is only a few percent below the USA. Furthermore, their level of subsidies to transit has been identified as a significant burden to their economies. This seems to indicate that the underlying economic realities are that roads and autos have significant economic advantage.

There seems to be a widespread failure today, to identify the cumulative, structural "external benefit" of roads. Historically, every dollar spent on roads has brought external benefits many times greater than the negative externalities. As you identify in your papers, Todd, roads are a demand enabler. We simply would not have a modern economy at all without them. There is no way that enough negative externalities could be imagined, to outweigh the benefits of having had a roading system at all.

But moving beyond that, yes, there are considerable gains of efficiency to be made in the pricing of access and mileage and even of the negative externalities. But we should remain clear that we are looking for efficiency gains, not predetermined ideological objectives that substitute means in place of ends.

For example, I have no doubt that much agriculture and farming, and the infrastructure including roads and rails, that is required to serve it, represents a dead weight loss to the economy. The end product is bulky, heavy, and low value, comparatively few jobs are provided, at low pay rates, and utilisation of the roading and other infrastructure is well below that at which benefits would exceed "costs plus negative externalities". The negative externalities of pollution from farming and agriculture are very much higher per dollar of benefit.

Contrast this with the modern metropolis. In comparison to most rural areas, every metropolis has a much lower expenditure on roads and other infrastructure per dollar of income generated by the metropolis. Under a true "user pays" framework, much farming and agriculture would be unviable. And yes, I do think that all such farming and agriculture should cease. Anyone who is a global warming and peak oil alarmist should think this even more strongly than I do on purely utilitarian grounds. (Global warming and peak oil alarmists should also be against trade unions and embedded inefficient work practices).

The question that Todd and other advocates against roads and autos need to confront, is how we could possibly have a modern economy with its high incomes and myriad external benefits to which roads are the main contributor; with means of "demand enabling" other than roads and autos. Telecommuting is an obvious modern technological substitute demand enabler.

All the honest evidence and analysis, points to the conclusion that there is NO transport framework that rivals the auto, for the capture of benefit ahead of cost. Yes, we could plan an auto-free economy. But its GDP per capita would place it in the third world, not the first. In this sense, the external benefits of the auto include a plentiful diet, a thorough education for our children, hospitals, public health, public safety, water supply, hot showers, lighting, heating, sewerage, and so on.

I repeat; this is not to say we could not do better through better pricing and incentives signals for auto use and especially, land use. Most government interference in the latter, has been to the worse regarding transport benefit-cost.

I do think that libertarians who advocate fully private roading funded by tolls, need to engage with economic geography analysis that shows that the potential revenue capturable by tolls, falls many times short of providing funding for as much roading as will enable maximum overall benefit-cost. That is, congestion under such a system would certainly be very much worse even than the status quo. It is the anti-auto activists who should be arguing for fully private, toll-funded roads; and the libertarians should be toning down their arguments in favour.

Austin, Texas, uses a formula for charging SITES (businesses, homes, etc) for "road use". This is a valuable component of a fair, effective and efficient road funding system. Other elements could be incorporated to send the right incentive signals and capture further efficiencies. The single most important factor, I believe, is in the incentive signals for the LOCATION of each business, office, school, hospital, warehouse, factory and so on; currently most such location decisions involve free loading on roading expenditure provided via the gas taxes paid by drivers.

Todd Litman's picture
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Inaccuracies In "The Big Picture"

Wodehouse's claim are inaccurate:

It is untrue that European countries have nearly the same percentage our amount of automobile travel as in North America. Unfortunately, I am unable to copy tables and figures into this message so you will need to visit the report "The Future Isn't What It Used To Be" (http://www.vtpi.org/future.pdf ); Figures 7 and 10 compare annual vehicle travel and mode split of various OECD countries. The results are very dramatic: the U.S. has about twice the annual vehicle mileage and a third of the walking, cycling and public transit mode share of its peers, and as a result bears significant economic costs including much higher per capita roadway and parking costs, obesity, traffic fatalities, energy consumption, and consumer expenditures on transport.

It is not true that transist subsidies and total transportation costs increase with transit travel. Subsidies per transit passenger-mile, and total household transportation expenditures (transit fares and automobile expenses) tend to decline with increased per capita rideship (see www.vtpi.org/railben.pdf, Figures 20 and 22).

Similarly, it is untrue that high rates of automobile travel support economic development. For information on this see my report, "Evaluating Transportation Economic Development Impacts" (www.vtpi.org/econ_dev.pdf ). Figures 12-15 show that within the U.S., per capita GDP increases with use of alternative modes, population density and fuel prices, and declines with per capita VMT and roadway supply. Yes, as countries shift from very low to moderate levels of vehicle travel there are probably significant economic benefits, but beyond an optimal level, increased personal vehicle travel imposes costs that exceed benefits. For more information on this see Figure 21 of my report, which summarizes research by Nadri and Mamuneas (1996) which showed that the economic return on investment from U.S. highways was very high during the 1950s (when the interstate system was first developed) but declined since then, due to declining marginal benefits (they built the most beneficial highways first) and increasing external costs. For more information also see research by Boarnet and Haughwout (2000) and Helling (1997) referenced in my report.

It is also untrue that I am "against roads and autos" or that I advocate auto-free economy. On the contrary, I am very aware of the significant benefits provides by roads and motor vehicles, which is why I advocate efficient management. This is no more anti-automobile than a healthy diet is anti-food. My research (www.vtpi.org/sotpm.pdf ) suggests that in a more economically efficient transport system, in which travelers have diverse options and efficient pricing, consumers would choose to drive significantly less, rely more on alternative modes and be much better off overall as a result, but automobile travel will continue to be the dominant mode in most communities. Rational motorists have every reason to support impovements to alternative modes, efficient pricing and smart growth land use policies because these reforms can reduce their traffic and parking congestion, accident risk, chauffeuring burdens, travel distances, and overall cost burdens.

Todd Alexander Litman
Victoria Transport Policy Institute
www.vtpi.org
"Efficiency - Equity - Clarity"

More points need incorporation in your analysis.

Todd,

Thanks for the new study or two, which I had not caught up with. i do find your studies informative, even if I detect an anti-auto, pro-transit bias in your interpretation of the information.

I appreciate the last paragraph of your posting above. I agree very much about "efficient management"; I think most of the problems we have now, are the result of planning assumptions of past generations, especially concerning zoning.

Your figures on European auto use do show lower use than I believe other analyses do. I do not yet know why this is. Nevertheless, I still think I have a point, that their auto use is still high even though they have gas taxes that over-compensate for "negative externalities" and external costs; and even though they heavily subsidise transit in contrast to their treatment of roads, autos, and drivers.

But I appreciate that you are probably realistic about this already.

i'd just like to make a few comments about your studies, and the factors that need to be considered by planners.

You and the planning profession absolutely MUST engage with the effects on land prices, of regulations; and the way these land prices then affect your intended aims through re-development patterns and the affordability of the resulting developments.

I am fascinated at the high numbers of Swiss who "walk" for mobility. I suspect that this is a legacy of continual "edge city" type development. If you want "walkability", edge cities are easiest places to achieve it. High land prices are the planners worst enemy.

You should repeat your analysis of demographics in the USA, Todd, for the European nations. That might explain a few things. They have collapsing birth rates and an aging population, along with much higher numbers of "singles" rather than married couples having children.

Lastly, I agree with your comments in one of your studies, on the international auto industry, only that you do not engage with the major changes that are occurring with the price of new autos and new technology, owing to their manufacture in low-wage China and India. Attempting to prop up auto manufacturing in the USA is indeed a lost cause, unless the Obama administration wishes to waste taxpayer money on completely contradictory sets of objectives. It makes no sense for the administration to be wanting reductions in inefficiency when it comes to autos and their use, but then subsidising an anti-competitive status quo in the auto industry.

I had an argument with an oil conspiracy theorist recently, on the subject of the oil companies allegedly killing off the famous electric car experiments of the 1970's. What I said was, that there was no way the oil companies were going to be able to stem the rising tide of high-tech and affordable electric and other high-efficiency autos from the East, even if they, rather than the crude lead-acid battery technology of the 1970's, were responsible for the demise of the Chevy "Volt".

I certainly agree with your point that early roading network development captures most of the benefit-cost; and of course it continues to do so. I think we are agreed on everything here except the point at which the benefit-cost of more roading development "goes negative". I think the benefit-cost of Transit goes negative somewhere along the line, too, even when it is not subjected to competition from roads, as in the former USSR. In fact, I think the benefit-cost of transit goes negative very early on in the progression from an "ideal" model, to the demands of the real world.

On your Transportation Economic Development Impacts, I am not sure whether the contradictory findings of Randal Pozdena have been satisfactorily answered yet. I certainly agree that there will be a proportion of VMT that is pure wastage, and avoidable; yet some proportion of rising VMT has to involve gains in GDP. It is the balance between the 2 that is important, and providing the right incentives for the one and the right disincentives for the other. Rigidity of land use zoning has to be one of the worst factors for inducing wasteful VMT.

Of course there is a correlation between GDP and density; this is a long standing natural relationship. But I suspect that attempted forced density, within arbitrary urban limits, with land prices inflating in consequence, will not have anything like the same result. Portland's statistical achievements are not really all that wonderful at all, and it is a question whether Portland can go anywhere further now that land value bubbles have strangled any further redevelopment in its cradle. Steep declines in employment of tradesmen seem to suggest otherwise, in all the "Smart Growth" areas.

I think, Todd, your capacity for producing quite thorough studies is good, but you just need to take note of a few highly momentous points that may significantly alter your conclusions.

Auto Usage versus Auto Ownership

I think you may be making the same mistake that Bruegmann (sp?) makes in his defense of sprawl. By mistaking auto ownership with auto usage. In his book he arrives at the conclusion that sprawl exists in Europe, and that auto ownership has risen greatly, therefore American smart growth proponents should realize that auto-ownership and single family residency are universal human desires, and not inefficient policy outcomes. However, most analyses that I have seen show that although auto ownership is reaching parity, Europeans are much more selective in their auto usage. Again this supports the theory that insurance, registration, and depreciation are not linked to usage (they become sunk costs), but higher gas prices, and availability of transit lead to lower usage.

I observed the same phenomenon in San Francisco, New York, and London due to parking. Many people, even in the urban core, owns cars, but use them only on the weekend, or for bulk shopping. However their usage (anecdotally) was lower, because they used alternatives, for commuting, short trips, shopping, and evening entertainment due to challenging parking.

Complex questions

That is a good point to raise for discussion, "marcotico". These things are very complex, of course. On European "sprawl", I strongly recommend to you, the population density profiles of many cities, done by Alain Bertaud in many of his studies. In fact, he argues, rightly I think, that population density profiles are an essential pre-requisite to any urban planning.

The point I was making, and you seem to agree with it, is that Europe does tax gas and subsidise transit, to a point that it would be hard to argue that the various positive and negative externalities for each have not been well and truly adjusted for - and yet, auto use remains high and predominant, (if more selective than in the USA) and "sprawl" does occur even if at a lower rate than in the USA. This seems to me to indicate that besides human preferences, there are systemic economic differences between roads and autos; and transit; that are simply insurmountable. (Buses fall somewhere in between). The experience with urban and transport planning in the former USSR provides forcible evidence. Alain Bertaud's "Cities Without Land Markets" and "The Costs of Utopia" should be required study in all planning schools.

One thing that really strikes me from Todd's recent studies, is the high incidence of walking in European cities, especially in Switzrland. The obvious enabler of this, is highly mixed uses of land. Europe did not move so forcibly AWAY from mixed uses of land as the USA did.

Mixed uses of land are actually "normal", and have to be regulated AGAINST if they are regarded as undesirable. The USA has done this for decades now. If you wish to reverse this process, of course it will take decades to reverse. Attempting to force it through restrictions and mandates, will do more harm than good - you need to "let it happen" through deregulation. Forcing land prices up does more harm than good, and forcing abandonment of existing infrastructure, even if it is less efficient, is also far more costly in environmental and resource impact than simply allowing the status quo to evolve in the right direction. This is because the provision of NEW infrastructure in the new planned dense areas, is much more costly than 30 years of inefficiency losses under the status quo.

The cheapest way to get walkable communities, fast, is to do them as "edge cities". But if you wish your inner urban areas to redevelop as "walkable", keeping the cost of land low is still essential. Paradoxically, this requires a free supply of fringe land. There is no other way to keep land prices low, without harming your objectives in other ways. For example, capital gains taxes are a strong disincentive to redevelopment of land, which is the very thing we want. By the way, strip malls ARE no less "walkable" than a quaint old quarter in a Swiss city.

You are quite right about the centres of San Fran, New York, and London being similar to European cities in transport habits. This is a natural consequence of high population densities at the centre of a metro area. The population density of metro areas, from Bertaud's profile studies, tends to slope evenly from the fringe up to the centre. Several factors influence just how steep or shallow the curve is, and how dense the metro area can be at its centre. The "age" of the city is one factor; so is its mixture of land use; so is its roading network. The roading network is far more important than the transit network. Transit is at its most viable only where population density has been supported by a roading network - without the roading network, blight tends to set in, and no amount of rail based mobility will halt it. Certain cities in the USA today are on their way to learning this lesson most painfully.

Incidentally, "commuting" is extraordinarily low as a proportion of usage of transit in Manhattan - it is simply an inner city dwellers way of getting around. But there are still far more cars per square mile in Manhattan than anywhere else in the USA. Transit is not a pre-condition for the wonderful combination of GDP growth and increased density, it becomes "viable" only after these things have been achieved. Other cities might have had the transit system all along, but on life support courtesy of taxpayer dollars. If eventually, all you get is economic collapse and blight, this drain on taxpayer dollars was not a good investment at all. Better get the other factors right, and stop regarding transit as a special magic formula.

One more factor re Europe

It occurs to me, if Todd Litman is noting what I am saying, there is one more significant factor about Europe that needs to be taken into account - they retire, and leave the workforce, at a younger average age, over there.

Reductio Ad Absurdum of Economic Thinking

"I have no doubt that much agriculture and farming, and the infrastructure including roads and rails, that is required to serve it, represents a dead weight loss to the economy. The end product is bulky, heavy, and low value, comparatively few jobs are provided, at low pay rates, and utilisation of the roading and other infrastructure is well below that at which benefits would exceed "costs plus negative externalities". The negative externalities of pollution from farming and agriculture are very much higher per dollar of benefit."

Economic thinking is useful as long as we remember that it abstracts from reality, so that we don't get so wrapped up in economics that we forget reality.

Without agriculture, almost all of us would starve. Agriculture keeps us alive, and that sounds like a pretty important benefit, whatever the dollar measurement of it may be. If we didn't have the food, we would not be able to survive by eating the dollars.

Charles Siegel

Agricultural land

Charles, there is no point in keeping agricultural land in loss-making production when the world markets are awash with surpluses, further depressing returns on land use. Not to mention that it makes third world agriculture unviable, when these people are the ones that most badly need to be growing their own food.

The distortions I identify, of roads and other transport and infrastructure being subsidised for farming regions, only results in far LOWER amounts of "local" food production. This is the opposite of what we should be doing to conserve resources and reduce emissions. Economic efficiency and saving the planet are most often the one and same thing.

I would have thought most people at Planetizen would have liked the idea that more food should be grown locally and unnecessary agricultural land returned to conservation. Actually, I have seen figures somewhere that show that this is the trend in the USA anyway; more and more is being produced on less and less land.

Should food shortages develop due to population increases eventually, then market prices of food and agricultural land should result in more agriculture being viable even on a basis of "user pays" for its infrastructure.

External Costs and Government Subsidies

I think Staley is technically right in distinguishing between

-- external costs: the side-effects of market transactions on third parties.

-- subsidies: such as public spending on roads and private spending on parking that is required by law.

But if he really believes in the market, he should realize that subsidies are as bad as externalities. Both distort the market in similar ways.

A free-market conservative should be against subsidies, even if everyone is paying the subsidy and everyone consumes the subsidized product. Eg, imagine that the government used tax revenue to give everyone free filet mignon. That would clearly be less efficient than the free-market policy of letting people choose what food they want to buy: many people would eat filet mignon even though they prefer other types of food that are less expensive. They would choose filet mignon because they pay less for it out of pocket, but they would pay more for food in total because they would be paying the extra cost of filet mignon indirectly in taxes. For society as a whole, this subsidy results in higher cost and less satisfaction.

A society that made a policy decision to provide everyone with free filet mignon would be making a very foolish policy decision, even if the majority wanted to eat filet mignon. Surely, Dr. Staley understands the economic inefficiency involved: it is basic Econ 101.

Likewise, a society that makes a policy decision to provide everyone with free parking is making a very foolish policy decision. It is not technically an externality, but it is a subsidy that promotes inefficiency and waste.

The "policy intervention" for subsidies should be similar to the intervention for externalities: make the consumer pay the full cost. For externalities, the intervention is to tax the product to internalize the externality. For subsidies, the policy intervention is simpler: remove the subsidy. Require parking to be priced separately at full market cost. Require drivers to pay a road use fee that covers the full cost of building all the roads they use (not just freeways).

The exception is transactions that create positive externalities, which should be subsidized just as transactions that create negative externalities should be taxed. This is the justification in market theory for subsidies to education.

Staley writes: "The subsidies used to provide roads are the explicit costs of providing these public goods for society’s benefit in the same way that general taxes are used to support the court system."

But roads are not public goods like the court system. Economically, public goods are goods that cannot be subdivided and sold on the market. You benefit when when the court system reduces the overall crime rate, whether or not you pay for the courts. Because the benefits of public goods cannot be subdivided and sold, there is a free-rider effect unless they are payed for by taxes: some people will choose not to pay because they can get the incidental benefits of lower crime without paying.

By contrast, road-use can be subdivided and sold to users: users can pay pay the full cost of the road by paying tolls or paying user fees based on mileage tracked by a GPS system. Roads are not public goods in the economic sense.

Just as obviously, parking is not a public good in the economic sense. You can pay the cost of providing parking by charging for parking.

There is a justification in market theory for subsidies to the court system because it is a public good. There is no justification in market theory for subsidies to roads or to parking because they are not public goods in the economic sense. Subsidies to roads or parking make as much economic sense as subsidies to filet mignon.

Incidentally, Staley makes an obvious error when he says:
"Only the portion of the cost born by third parties (presumably non-oil consumers) would be considered an external cost."
I have to assume that this is just an oversight: costs borne by oil consumers also are external costs. This should be very clear if you consider pollution controls on power plants: everyone consumes the electricity that these plants produce, but diseases caused by pollution from the plants very clearly are external costs - everyone's diseases, not just the diseases of non-electricity consumers.

Charles Siegel

I can agree with that

I think Charles is correct in saying that Sam is technically correct. But, I agree that roads are not a public good. They are very much a private good being offered by the public. They satisfy neither economic criteria for public goods. And I also agree to charge consumers the full cost of use and some external cost.

Samuel Staley's picture
Blogger

Defining "public good"

Wow, this short string has really shown me how far away the professional planning community is from basic concepts of social welfare economics and policy analysis. This isn't really a criticism as much as an observation. I generally prefer to watch these discussions unfold organically because they are far more interesting than if I engage in them, but I think a "technical correction" is necessary.

With all due respect, roads *are* public goods. I think the discussion here is confusing the concept of a "public goods" with the Public Good. According to standard and eminently conventional public choice economics (as taught in political science, public administration, and economics), a public goods is a service or product that has the following chracteristics:

1. Others can not be excluded from its use;
2. High transactions costs prevent them from being provided in the private market place; and
3. Rivalry (simulutaneous consumption) does not diminish the benefit.

Roads have traditional easily and noncontroversially satisfied the first two characteristics, particularly local roads and other arterials. These two reasons are why toll roads have *historically* failed.

The third characterstic is more problematic. Since many roads were developed during periods of very low mobility, rivalry was not a problem. Roads exhibit characteristics of #3 up to the point they become congested. More and more roads exhibit this characteristics but it is by no means a universal characterstics of road systems.

I've actually written a conference paper on why roads will no longer be public goods in the near future thanks to technology, and I would be happy to send that to anyone if they email me at sam.staley@reason.org. Our book "Mobility First" also makes a strong case for moving roads from public goods to private (and privately provided) goods. But, except for limited acces highways, "we aren't there yet".

Nevertheless, the academic point is that roads are public goods. This should not be confused with the concept of whether they satisfy the Public Good, which is a political concept that reflects value judgements about their general benefits of services to society. (Although lots of researchers and analysts recognize that having a well functioning road system provides important generalized benefits to society.)

Moreover, public goods are distinct from externalities. Providing any product or service, in the public or private sector, can have uncompensated spillover effects that are are externalities. And the remediation for externalities is very different and involves different policy mechanisms.

Charles (and Todd's) point about subsidies distorting signals and incentives are correct, but *this* post was not intended to focus on that particular aspect of the discussion. Rather it was to distinguish between public goods and externalities.

Defining sampling bias.

Wow, this short string has really shown me how far away the professional planning community is from basic concepts of social welfare economics and policy analysis.

Wow! this short string has really shown me how far away the professional punditry community is from understanding basic concepts of statistical sampling. Or logical fallacies of hasty generalization or conflation. Or something.

Best,

D

more on public goods

I generally agree with you and by the way, I am not a professional planner. A public good is defined economically as one that is nonexclusionary and one that has no rivalry in consumption, much as you describe. A road or highway CAN exclude consumers, it's just that they typically DON'T. Also, there is tremendous rivalry in consumption. Others' use of roads certainly affects my use of roads. National defense or the court system - my "consumption" of these does not affect others' consumption of these.

By defining roads as a public good, even economically, you are advocating or at least implying that they would be pudently financed with general tax revenue. In fact, you advocating for the opposite, as most everyone posting here is. I understand we aren't there yet, but that is more of a political choice, not one of technology. Roads are very much like utilities - one could certainly make a case they are natural monopolies, but I don't think they satisfy both criteria of "public goods".

Parking, Roads, and Public Goods

In response to Lewyn, Staley wrote:
"In this case, parking and low-density housing is not an externality but reflects collective values expressed through the political process and is a policy outcome. Just because an outcome is undesirable or unanticipated doesn't make it an externality."

There was a bit of confusion: Because this comment about parking on another thread came at the same time as your post about public goods, I got the mistaken impression that you were saying that parking is a public good as well as roads, which clearly is not true. Looking at the post, I see you were saying that free parking is a policy choice with possibly undesirable outcomes.

Do you agree that this subsidy should be removed, and users should pay market (=marginal cost) price for parking?

roads *are* public goods.

"Our book "Mobility First" also makes a strong case for moving roads from public goods to private (and privately provided) goods. But, except for limited acces highways, "we aren't there yet".

It is a bit misleading to say "roads are public goods" when you mean that local streets and roads are public goods but limited-access highways are not.

I agree that, with technology already in place, we can and should begin to charge for use of limited-access highways now (which is why I mentioned tolls). I also agree that we should move use of local streets and roads by motor vehicles from public goods to private goods soon, when the technology is available.

this short string has really shown me how far away the professional planning community is from basic concepts of social welfare economics and policy analysis.

I also am not a professional planner. I based this post on my reading in welfare economics, not on my reading in city planning.

Note that your first criterion for a public good:
"1. Others can not be excluded from its use;"
is virtually identical to my description:
"Because the benefits of public goods cannot be subdivided and sold, there is a free-rider effect"
I think CP understood what I meant.

Charles (and Todd's) point about subsidies distorting signals and incentives are correct, but *this* post was not intended to focus on that particular aspect of the discussion. Rather it was to distinguish between public goods and externalities.

I am glad to hear that. I think most of the criticism of your post resulted from a misunderstanding. I (and, I am sure, others) thought that when you said that roads are public goods like the court system, you were implying that public subsidies to roads are justified, as public subsidies to the court system obviously are.

Charles Siegel

Still incorrect: roads in general are not public goods

As a practicing academic teaching public economics, permit me to note that Sam still incorrectly applies the concept of public goods to roads. His definitions of the concept are fine. Where the error lies is in an apparent refusal to allow that roads are not a homogenous commodity, but quite heterogeneous.

Residential streets and collectors do fit under the economic definition of a public good. Pricing them would cost more than is worth (the value of the benefits prevented is less than the cost of exclusion).

But that is decidedly not the case for urban expressways, which have been tolled for decades, even before the adoption of new radio frequency technologies, such as Easy Pass. So these are private goods in the technical sense – excludable goods -- and also in the economic sense.

One is left to speculate why he ignores the heterogeneity, although it is not difficult to do so. Transport economists have long argued for tolling of peak demands as a method to rationalize the investment in urban expressways. Doing so would, however, weaken the rationale for using gasoline tax revenues to subsidize them, as we would then have good market evidence that we have overbuilt urban expressways, and underinvested in mass transit alternatives, such as rail.

Transportation is the public good, not roads per se.

I agree with hcgoddard's implicit assertion that here again we have yet another error/fallacy of conflation/hasty generalization. This common conflation tactic is often found in sprawl arguments (everyone wants a big house and big yard and hates density!), growth boundaries (UGBs and planners caused the housing bubble!!!!!), and so forth.

Perhaps it is best to clarify that it is transportation that is the public good, not roads per se. Local access and collector roads may be de facto public goods due to our autocentricity, just as sidewalks and bike lanes _can_ be public goods if such transport were more universal in this country (or possible).

Nonetheless, transportation may be non-excludable, but it is not non-rival, which may be the reason why pro-auto arguments from some quarters are so...erm...rich and varied in their breadth and scope and frequency.

Best,

D

If you look close, you'll see all these authors mainly agree

This discussion is as good an example of any of how important the concepts of externalities, subsidies, and distortions are to public policy, and how hard they are to explain.

Michael Lewyn claimed first that a well-meaning but excessive minimum parking requirement is an externality that in the end worsens congestion, pollution and public health. Staley argued, by contrast, that public regulations and roads couldn't be externalities since they are voluntary, via democracy. Plus they are public goods, even if funded indirectly. Litman and then Siegel countered that roads and parking are, rather, private goods best completely financed by direct user fees to avoid distortions.

Setting aside the rare occasion of a libertarian is arguing a good is public against those (presumably) to his left claiming it is private (just to show you how reliable that right/left thingy is), the main debate here is about subsidies, not externalities. Litman has literally written an encyclopedia on the subject, and Staley a book or three -- so I'll make a further observation for the reader that the authors could have done just as well themselves, blog etiquette permitting.

Lewyn says the parking requirement is an inefficient car subsidy, while Staley says a general tax funding roads is effectively a user charge; Litman and Siegel say it isn't, but agree a user charge is the right idea. Thus in an important way, they may be reluctant to admit, all commenters thus far seem to agree on principle -- cars and their facilities should be user financed -- and disagree only in whether parking regulations or general taxes or some alternative funding system is worse or better at doing the job.

R Crane, UCLA

p.s. For homework: Show that Lewyn's example is a distortive regulation, not an externality as such. (Explain how externalities are distortions while distortions need not be externalities.) Is a road a public good? Show it has properties of both and what that means for how it might be efficiently and/or fairly financed. Is a public good an externality? Show it is technically a subcategory of externality but explain how Staley is right that remediation strategies for the two are normally quite different.

I Don't Even Think We Disagree On That

"Lewyn says the parking requirement is an inefficient car subsidy, while Staley says a general tax funding roads is effectively a user charge; Litman and Siegel say it isn't, but agree a user charge is the right idea. Thus in an important way, they may be reluctant to admit, all commenters thus far seem to agree on principle -- cars and their facilities should be user financed -- and disagree only in whether parking regulations or general taxes or some alternative funding system is worse or better at doing the job."

Based on Staley's initial post, he seemed to believe that it was valid to fund roads with a general tax, but now he has said:

"I've actually written a conference paper on why roads will no longer be public goods in the near future thanks to technology, and I would be happy to send that to anyone if they email me at sam.staley@reason.org. Our book "Mobility First" also makes a strong case for moving roads from public goods to private (and privately provided) goods. But, except for limited acces highways, "we aren't there yet".

So Staley agrees with Litman and Siegel that it is best to fund roads with a direct charge to users rather than with taxes. He only disagrees by saying that the technology is not there yet. (That is not really a disagreement: I agree that the technology will be better soon, and I agree that the one thing we can do now is to toll limited access highways - but that is obviously one very big thing we can do now.)

I expect that Lewyn and Crane also agree on this point.

(As I have said before, I think the motto should be "Access First" rather than "Mobility First" - but we all seem to agree about what is the best method of funding roads, though I am sure we would not agree on the best method of spending the funds we raise).

Interesting discussion, and I will write more tomorrow.

Charles Siegel

Todd Litman's picture
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I Don't Think We Agree On Implications Of Road and Fuel Pricing

Although economists and policy analysts may be interested in the semantics of terms such as 'exterality,' 'subsidy' and 'public good,' this debate offers little practical guidance to planners. Yes, a certain amount of roadway capacity can be considered a public good because it provides general benefits to society, but the larger, more costly road system required by high levels of automobile travel does not meet these criteria: it is a luxury, the incremental costs of which should rationally be charged to users. Similarly, that BP the cleanup and compensation costs borne by BP for the Deep Horizon spill are inernalized costs which does not eliminate the very large, uncompensated external economic and environmental costs. Even if these external costs are ultimately borne by motorists as a group, they are inefficient (they underprice vehicle travel and fuel consumption), and to the degree that some people drive significantly more than others, they are unfair and can be considered a cross-subsidy.

The total inefficienty and harm resulting from such underpricing is far greater than most analyses indicate because their impacts are cumulative and synergistic (total impacts are greater than the sum of individual impacts). For example, underpriced road use not only increases congestion and roadway facility costs, by increasing total vehicle ownership and use it also increases parking costs, accidents, fuel consumption, pollution emissions and sprawl compared with what would occur with efficient pricing, while underpricing fuel, not only increases the economic and environmental costs of fuel use, ti also increases traffic congestion, road and parking facility costs, accidents and spawl. Market distortions favoring automobile travel and sprawl tend to reduce travel options and land use accessibility, which harms non-drivers and reduces transport system efficiency. Underpricing encourages driving for trips when alternatives are more efficient overall. Put differently, correcting pricing distortions provides multiple benefits.

Dr. Staley's original posting argues that current underpricing of roads and fuel is acceptable because roads and fuel consumption cannot be categorized as true external costs. I strongly disagree.

There are very good reasons to charge motorists directly for roadway use and to signficantly increase fuel taxes: such pricing reduces traffic congestion, tests consumer demand for road supply and sprawl, can avoid the need for roadway expansion, and reduces costs of complementary goods such as parking, and reduces external costs resulting from the consumption of these goods, including traffic accidents, oil spills and the economic costs of importing petroleum. Ideally, road use should be priced with time-and-location variable tolls, but if this is infeasible, surrogates such as fuel taxes and parking fees are good substitutes, far better than funding roads through general taxes or fixed vehicle registration fees, and even if roads are funded by tolls, fuel taxes should increase to internalize the economic and environmental costs of petroleum production, importation and distribution.

For more information on these subjects see my report, “Transportation Cost and Benefit Analysis" (www.vtpi.org/tca); particularly the chapter “Resource Consumption Externalities,” (www.vtpi.org/tca/tca0512.pdf ), which ends with a discussion of optimal fuel taxes.

Todd Alexander Litman
Victoria Transport Policy Institute
www.vtpi.org
"Efficiency - Equity - Clarity"

Staley's Posting Seems To Imply

"Dr. Staley's original posting argues that current underpricing of roads and fuel is acceptable because roads and fuel consumption cannot be categorized as true external costs."

I think his posting seemed to imply that, but according to his latest clarification, he did not actually mean that. From my latest comment:

Staley: Charles (and Todd's) point about subsidies distorting signals and incentives are correct, but *this* post was not intended to focus on that particular aspect of the discussion. Rather it was to distinguish between public goods and externalities.

Siegel: I am glad to hear that. I think most of the criticism of your post resulted from a misunderstanding. I (and, I am sure, others) thought that when you said that roads are public goods like the court system, you were implying that public subsidies to roads are justified, as public subsidies to the court system obviously are.

I hope Staley will give us a final clarification and tell us that he was just interested in getting the technical definition right and agrees with us that we should deal with the current underpricing of roads and fuel by 1) eliminating subsidies and 2) internalizing external costs. For roads, we can do that with limited-access highways immediately and with local roads soon, when technology is in place.

These policies are obviously implied by market economics, so I think Staley should be an enthusiastic supporter of them.

Charles Siegel

I think that is a useful clarification

and would be surprised if he did not agree with that policy direction. There would lots of arguing about quantifying your 2) internalizing external costs, but it's a step in the right direction to at least have that conversation. I wish all policy debates were as rational.

Samuel Staley's picture
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Sampling Bias

Touche' Dano! Sam Staley

Staley's misleading "analysis"

Apologies for the length of this post and any remaining typos.

Sam Staley’s attempts in his initial and following posts to clarify the concept of external cost as related to highways falls short and is misleading, as seems frequently to be the case in his posts to this site. For several reasons one has to be circumspect in accepting Staley’s line of argument, as he is clearly more motivated by his libertarian proclivities than his understanding of Economics.

External costs, as Mueller (Staley’s source) correctly points out, are defined as uncompensated third party costs. But the larger issue and concept is market failure, of which external costs, and benefits, are merely a subset. There are other forms of market failure, such as subsidies, monopoly, asymmetric information, moral hazard, public goods, disparities between private and social rates of discount and open access resources (unspecified property rights), to mention just a few. In fact, such market failures are ubiquitous in highway investments, so one has to be very circumspect in accepting the “analyses” and nostrums of libertarians, such as Staley.

The definition of market failure comes from the conclusions of Pareto optimality analysis. Market failure results from any exchange arrangement in which marginal social benefits of resource use are less or more than associated marginal social costs. Subsidies in particular violate this condition and lead to the overuse of the subsidized good or service, other things equal.

Further, there are basically two definitions for public goods, to which Staley incompletely alludes. First and the simplest, is a good or service than cannot be made excludable – excludable means my consumption of a good precludes your consumption of the item – think a foodstuff. Markets work only for such excludable goods, and even then, as we have seen in abundance, not always well. In contrast, an unpolluted airshed is a non-excludable good, as there is no private market that will provide it – the beneficiaries cannot be excluded and therefore cannot be charged for the benefits received.

Second, and more generally, a good or service should be a public good (i.e., net social benefits are increased) , if the costs of exclusion exceed the value of the benefits prevented. Public health measures are a standard example, and air pollution control is another. That is, a private market would find no or too few consumers for public health and air pollution control because the transactions costs too high (the demand or marginal benefit function lies below the marginal cost curve). Thus, selling access to an unpolluted airshed is uneconomic, but that does not mean it should not be provided, just that private market will not do so (I am shipping over the issue of the assignment of property rights).

So how should these concepts be related to highways, and the externalities that the subsidies make possible?

First, contrary to Staley’s assertion (“ roads are usually classified as public goods”), urban expressways and interstates are definitely “private” or excludable goods, and in fact are regularly priced through tolls – there are several such tolled urban expressways on the East coast and elsewhere, such as Chicago in the Midwest. The public goods argument can be made only for local streets and roads, and so Staley improperly and misleadingly applies it to all roads. That is of course due to his libertarian bias.

Staley states: “Are the taxes levied to fund roads an external cost? No. For the most part, they are not costs imposed on unwilling third parties.” Again, this is a misleading argument.

Economists use the following convention to discuss externalities. Using the case of air pollution, it directly affects plants, animals, humans and production processes through respiration and direct deposition, harming the receptors, the “pollutees”. We say that these are “technological” interdependencies or externalities that directly impact utility (functions) and production (functions). The damage does not appear in market prices, and thus the market “fails” to allocate resources to maximize net benefits. Subsidies, in contrast, affect explicit and implicit prices directly rather than utility, and traditionally have been termed “pecuniary” externalities. Both, however, are termed costs, and so it is insufficient to use the generic term “costs”. Subsidies are indeed an externality in the pecuniary sense.
The relevant questions is this: do highway subsidies create external costs? The answer is yes – they are pecuniary externalities, but not technological in the sense of pollution. But they are nevertheless a source of a serious misallocation of resources, resulting in levels of investments such that the marginal social benefits are less than the marginal social costs, and therefore represent a market failure. The effect is the same – a misalignment of marginal benefits and costs.

Urban expressways are sized to accommodate peak demands, which themselves are a function of highway capacity – a fact that highway engineers and libertarians prefer to ignore . The incremental cost of constructing a seven lane expressway in each direction (Atlanta) is not charged to the peak user, and as a result the highways are oversized and investment in them is excessive. On that account alone, the marginal social costs exceed the marginal social benefits. Because they are not priced, they will always be congested at peak times. This conclusion is very old, and Staley knows it, but prefers to ignore it.

And I should note, heavy rail and light rail never experience the same congestion delays at peak times. Travel times do not vary – only the rail cars are congested.

Thus, my gasoline taxes fund expansions of urban expressways to accommodate peak users, from which I may never benefit, not to mention those taxpayers outside of metropolitan areas. These are created by the subsidies.

Staley states: “In fact, most communities vote on property and sales tax increases to fund roads, and they approve these quite often.” He conveniently neglects the distinction between roads and streets on the one hand, and highways on the other. Communities virtually never vote on road or highway expansions, the source of road transport externalities, and Staley knows this. In fact, they rarely vote on local streets, except for maintenance. Most of the funding for virtually all road investments comes from state and federal gasoline taxes. And having directly and officially participated in regional transport decision making, I know from personal experience that the process is quite far removed from the voters, and is clearly biased in favor of highways and against mass transits. The externalities are purposely and studiously ignored and dismissed, precisely because they are not monetized.

So it is grossly misleading to suggest that highway financing (subsidies) is not a an externality. The subsidies give rise to excessive highway investments and thus to the externalities, as the subsidies are they enabling mechanism. These subsidies bias the choice process, and create the externalities, as they lead to the situation in which the marginal social costs exceed the marginal social benefits, the definition of market failure, which should be the controlling concept. Staley has been an aggressive proponent of highways, and still seems to be.

Todd Litman has the more accurate analysis of the situation.

Some good points and explanations

but I have a question: would not government road financing of any sort (especially highway) be considered a government failure, not a market failure. The market did not fail, the market was not given a chance. Maybe it's a technicality, but I don't see the public financing as an externality per se, but rather a government failure inefficiently providing a private good. The externalities seem to me to be air pollution, runoff, etc. Thoughts?

That's What He Said

In much reduced form, I gather Goddard is making two claims. One, highways have lots of negative baggage hence any highway subsidy just means more bad. Two, Staley says it ain't so even though he knows better, owing to his nefarious libertarian bias.

Ok but, (a) Staley said no such thing and (b) as a commenter points out, Goddard's analysis offers no help determining what size highways should be (much as Lewyn's minimum parking requirement analysis doesn't help us determine what the parking requirement ought to be), or how much to charge.

What Staley said was that road taxes are not themselves external costs (if only because genuine externalities are not pecuniary). It is possible that Goddard knows, but isn't saying, that the Pareto preferred option to bad pricing is better pricing. Litman, on the other hand, spells this out in some detail. So again I conclude that the real debate here is over the form and burden of the user charge -- not what is or isn't an externality.

R Crane, UCLA

p.s. Look honey, commenters on the Planetizen site are pressing Sam Staley to more aggressively advocate user-charges.

Michael Lewyn's picture
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agriculture analogy doesn't support the status quo

It seems to me that Wodehouse's agriculture analogy doesn't justify anything like the typical American status quo.

The existence of agriculture certainly increases economic growth. And I am willing to assume (at least for the sake of argument) that the existence of private vehicles increases economic growth.

But only a small minority of the population engages in farming. Thus, the agriculture analogy does not support the proposition that every American who is physically capable of doing so should be driving every day.

Allow me to claify

Permit me to summarize what I realize was a bit of a long lecture on the finer points of “market failure” and welfare economics. The points are two: 1) externalities are just one of several important forms of market failure, more than one of which apply to highway investments, and 2) we cannot rely on Sam Staley to provide clear guidance to the Economics of transportation.

First point: externalities in the technological sense indeed are one form of market failure. But subsidies also lead to market failure (inequalities between marginal benefits and costs), and further, because subsidies encourage excessive investments in highways, they induce excessive auto use, and consequently, even greater negative externalities (see Todd Litman's posts). It is a double whammy.

Second point: my best estimate is that Sam will never admit that we have invested too much in highways. Thus my comments about his misleading analyses of lumping all roads and highways together as public goods. They are not. My view of Sam's stance is that of Upton Sinclair: “it is difficult to get a man to understand something when his salary depends on his not understanding it”.

So expecting Sam to agree publicly to peak demand user charges and its implications – increased demand for and investment in rail transit – is most unlikely.

On these blogs I haven’t yet been able to identify anyone who is an economist, and so it appears that Sam has appointed himself to fill the void. But he consistently and persistently distorts and misrepresents economic analysis, either for lack of understanding of the issues, or more likely for his ideological orientation.

Perhaps it is time for Sam to come clean about his academic preparation, and inform the members of this list about his two years in Economics graduate study at George Mason University. To this observer at least, they seem not to have had much of an impact on his understanding of the Economics of the social problems that confront us, and as a result he continues to misinform and mislead those readers who have academic backgrounds in other fields.

Maybe too clear

I could simply repeat my earlier comment on your earlier comment, as it seems to fit well enough here too, but let's go ahead and use this unpriced Planetizen space to clarify a bit: First, with all due respect, questioning someone's credentials or presumed biases in a technical debate is the last bastion of scoundrels. Let's instead examine these issues on their merits.

Second, your point that highways generate externalities is a misleading basis for simply dismissing Staley's claims that local roads have public goods properties. He wasn't denying your claim. Yet it remains confusing to claim that subsidies are themselves externalities. I was raised that pecuniary externalities are not real, plain and simple, and your discourse is less than clear on this. Besides, saying a good is associated with externalities is not so different from saying it has public good properties.

(Consider case 1, where utility U is explained by private goods without externalities x and exogenously provided private goods with externalities y, which are funded by taxes, so U=U(x;y), where y is not a choice variable. Or say there are only private goods x and public goods y, so U=U(x;y), where y is not a choice variable. Or in case 2, say y is a choice variable funded with endogenous taxes. The specification of the choice problem and the conditions for its solution have two forms: Either choose x given prices and taxes, or choose x, y and taxes, given prices. Whether y, the highway say, is private or public makes no difference for the form of these conditions.)

Third, you argue highways are private, since they are feasibly excludable (which overstates the properties of pure private goods, as I'm pretty sure Buchanan got a Nobel for examining such goods as quasi-public), yet are compliments with goods having external costs, namely cars, bad drivers and bad location choices. In its simple form on this page, that argument ignores any benefits of highways, presumably one basis for any subsidy in the first place. Your counterargument is that the highway planning process is corrupt (my word). Yet, in contrast to your claim, the federal and state share of local highway costs has dropped greatly in recent decades, such that is not uncommon they are largely locally financed with either tolls or voter approved sales taxes. (Litman certainly has the numbers.) My home California county of Orange is maybe a prominent though not unique case. This is hard evidence in Staley's favor.

Finally, to get to the heart of the matter, if highways have benefits -- as mobility and accessibility (however defined) are good, as well as costs -- as pollution, congestion and sprawl (however defined) are bad, what then to do? That is to say, where are the externalities precisely, how then should highways be financed, and what are the right congestion/pollution prices on travel? Though key to your narrative, you are quiet on these points.

In addition to Litman's encyclopedia, three references that you, as a real economist, may find useful to consult in responding are, (a) regarding how complicated a congestion toll might be (by one of my teachers back when I was learning economics on the streets), Diamond (1973), (b) specifically when a transport subsidy is inefficient (for travel and sprawl) but also complicated in a balanced budget framework (by one of my neighbors down the street), Brueckner (2005), and (c) on how local taxes to finance local public goods are probably still distortionary (which I wrote while living in my car on the street), admittedly a secondary issue but I'm throwing it in for completeness, Crane (1992).

R Crane, UCLA
Incoming editor, JAPA

Brueckner, J. (2005) "Transport subsidies, system choice, and urban sprawl," Regional Science and Urban Economics 35, 715–733.

Crane, R. (1992) "Price specification and the demand for public goods," Journal of Public Economics 43, 93-106.

Diamond, P. (1973) "Consumption externalities and imperfect corrective pricing," The Bell Journal of Economics and Management Science 4, 526-538.

Benefits vs. External Costs of Highways

"if highways have benefits -- as mobility and accessibility (however defined) are good, as well as costs -- as pollution, congestion and sprawl (however defined) are bad, what then to do? That is to say, where are the externalities precisely, how then should highways be financed, and what are the right congestion/pollution prices on travel?"

Economists would do well to come down from the heights of abstraction occasionally and think concretely. Here is the reality check:

Americans drive twice as much per capita today as in the 1960s.

The increased driving produces sharply diminished benefits according to the law of diminishing marginal utility. in the 1960s, Americans already drove as much as anyone reasonably needs to, and many urban planners were already saying that Americans drove too much. Since then, lots of people have moved (for example) to new suburbs in the Central Valley of California and become extreme commuters. Those people are victims of the zoning laws and would obviously be better off if California had developed streetcar suburbs rather than sprawl suburbs, so people did not need to drive as much.

The increased driving produces undiminished external costs, including costs that no one even thought about in the 1960s, such as global warming, dependency on foreign oil, higher energy prices that will come as a result of peak oil.

We are obviously well beyond the point where the marginal external costs of driving exceed its marginal utility, so we would be better off if we drove less.

Getting back to the realm of abstraction, I think the same point is true of economic growth generally. Growth produced diminishing marginal utility and undiminished external costs, and we have reached the point where the external costs outweigh the benefits. I analyzed this graphically in my book The End of Economic Growth. See the graph by going to http://www.preservenet.com/endgrowth/EndGrowth.html#Appendix and scrolling down a bit.

I simplify a bit in this post, and the analysis is more complete at that link - where I talk, for example, about the effect of pollution controls and new technologies on marginal external costs.

Herman Daly has done a similar analysis in terms of marginal utility and marginal total cost, but I think my analysis in terms of marginal utility and marginal external cost gets at the real policy issue that we are talking about when we decide whether we should build more highways.

Charles Siegel

Come on down

Jeez, is there a workshop that Planetizen commentors take encouraging the use of cheap shots?

Anyway, your book is impressive on many levels yet also chock full of the normative, which is all fine and good but does provide lots of wiggle room for reasonable disagreement. On this particular page, where the issue Staley ostensibly raises is how to define externalities, which I've been arguing has ended up being more about the treatment of subsidies in a world where user charges are king.

Here, you dismiss the value of general logic (meaning I guess that you are dismissing my question as unrealistic) in favor of the more concrete, then immediately make an extraordinarily general argument about the value of more driving versus less, concluding we'd prefer less.

Maybe so but that's a bit off track, right? Unless you are saying we should charge people more to drive in general, so they will be happier, or only that we should stop building new highways (which we sort of have, haven't we? -- does this include HOV and HOT lanes, and addressing bottlenecks and gaps?), or ... what is your externality (i.e., corrective pricing strategy) or subsidy (i.e., reduce for all or new or ? roads) argument exactly? Putting it in the form of a concretely specific place or example would be great.

R Crane, UCLA

More On Benefits and External Costs

I am not sure what you mean by "chock full of the normative," and I would appreciate it if you could expand on that.

It is my general observation that social scientists get carried away by manipulating abstractions, which cannot be tested experimentally as in the physical sciences. I didn't mean the talk about abstraction to be directed at you personally, and I am sorry if it sounded like a cheap shot.

I meant to answer your point:
"if highways have benefits -- as mobility and accessibility (however defined) are good, as well as costs -- as pollution, congestion and sprawl (however defined) are bad, what then to do?"
which I think we can test thought-experimentally by considering two concrete examples.

Sprawl suburbs require at least twice as much driving as New Urbanist suburbs. Let's compare the costs and benefits of the two.

First, the benefit to the consumer: I personally feel that all the extra driving you must do to live in a sprawl suburb brings no net benefit to the consumer: I would rather live in a neighborhood where I can walk to a shopping street. However, let us assume that most people would say there is some benefit to living in a sprawl suburb and having their house on a larger lot.

Next, the net benefit after subtracting external costs: There are very significant external costs to driving twice as much to live in a sprawl suburb, such as worse global warming, higher energy prices (a pecuniary external cost), loss of agricultural land and recreational open space, dependency on imported oil, the cost of military operations to protect that oil, the rise of petro-dictatorships in oil-rich countries, etc.

When we think concretely about the benefits of driving to the consumer and the external costs of driving, it seems very clear that we would be better off living in New Urbanist suburbs and driving half as much as we do today. This is much clearer when we think concretely about what it is like to live in the two types of neighborhoods than when we think abstractly about the economic theory of externalities.

Driving produces diminishing marginal utility and undiminished externalities, and we drive far more than the optimum.

You ask, "What should we do?" Since we would better off driving half as much, we should obviously adopt the range of policies that most urban planners agree are needed to reduce driving, including raising the price of driving, changing the zoning laws to allow development of New Urbanist suburbs, building more public transportation and more walkable neighborhoods around the transit stops, and so on.

When we stop thinking about the theoretically optimum pricing of road use and start thinking about how to make our cities and world more livable, it should be clear that higher pricing of road use is one way to move us in the right direction.

(Incidentally, as I said earlier, I think Staley is right to say that our spending on road use is a distortive subsidy rather than an externality.)

I hope you find this explanation useful. And thanks for saying: "Anyway, your book is impressive on many levels yet also chock full of the normative." As I said, I would appreciate more explanation of "chock full of normative."

Charles Siegel

the good and the bad

Chock means frequently, and the normative means your conclusions often turn on your own values. No harm in that at all, especially as you are quite transparent about it. So I found myself disagreeing with your conclusions now and then only because we simply disagree about what we take to be the good and bad in particular instances.

Social scientists in some fields may avoid testing but that is not the norm, especially not in this one. For example, I gather you'd be surprised that the empirical work on driving in sprawl suburbs does not indicate twice the driving as in new urbanist neighborhoods. There may be a case of this, but as a general statement it does not stand up to the facts. Look at the Ewing/Cervero summary of built environment/travel elasticities in the latest issue of the Journal of the American Planning Association, which indicates fairly low sensitivity of travel to density/mixed use/etc.

R Crane

Driving in Different Types of Suburbs

That research looks at driving in existing regions. Even if you live in a New Urbanist suburb, you have to drive long distances because the region as a whole is low density.

My thought experiment was meant to compare what it would be like if the entire US (or an entire region) were built as New Urbanist suburbs or as sprawl suburbs.

It is a very simple calculation: If New Urbanist suburbs are four times the density of sprawl suburbs, then the average distance travelled in a region of all NU suburbs would be about half as much as the average distance in a region of all sprawl suburbs. Developed area of the region is one-fourth as great. Purely because of this reduction in the developed area, distance traveled is square root of one-fourth = one-half as great, ceteris paribus.

Newman and Kenworthy's international comparisons come up with about the same coefficient. They compare density and per capita VMT in entire metropolitan areas, not in individual neighborhoods of sprawling regions.

(Incidentally, I was thinking mostly about theories of economists that cannot be tested.)

Charles Siegel

Reply to Randy Crane: Ideologues and Urban Transport

Randy is offended by my direct and pointed challenges to Sam Staley’s posts because I do not stick to purely technical arguments, the convention in academic interaction. I infer from his response that he has not had much contact with the anti-transit ideologues, and therefore may not understand how one such as myself has come to realize that straightforward technical and academic arguments with this crowd do not lead them to soften their opposition to rail transit in all places and in all forms (except maybe Chicago and New York City) and to adopt more informed and nuanced positions on transit and transport issues. In fact I communicated this to him privately, but evidently he was not persuaded. Permit me to try again with this post to the wider readership of this blog. I relate a bit how I came to these views.

In 1998 I returned after several years of living and teaching in Mexico City. My research was focused on Mexico City’s terrible air quality problem, mostly a problem of mobile sources. That work caused me to dig deeply into the transport literature to support my research on using market based incentives for pollution control. Upon return, because of this experience, and my expertise in benefit-cost analysis (BCA), a former student who had become very active in the then intense debates over new transport investments in our region asked me to join an advisory local business development group and to attend the meetings at our regional planning authority. The planning authority had spent $3 million on a long range transport plan that came to a completely confused conclusion – all the options had benefit-cost ratios of less than one. The problem was that the neither contractor nor anyone at the MPO knew how to do legitimate BCA

We lobbied local officials to redo the economic analysis, but this time with a well qualified firm of transport economists – they agreed and HLB Decision Economics was selected and group of local financial executives and economists oversaw the work. This study was very conservatively done: benefits were knowingly underestimated (data did not exist on several relevant benefit dimensions, and so were left out), and the most extreme cost conditions were explicitly included. Further an uncertainty analysis done (Monte Carlo).

This time the ranking favored light rail over the other options, really not a surprise since the transport infrastructure in the Cincinnati region is virtually all highway in form and congestion delays on the interstates were severe. The calculated mean benefits were$1.5 billion (mostly time saved), the mean costs $750 million, and thus the mean net benefits were $750 million. Those were the economic benefits, not the financial ones, although the costs were all financial (real dollars). So the region would be better off by at least that amount, even if it had to pay for all of the costs itself, although at the time, our cost share would be only 25%. The Regional Council of Governments (our MPO) approved the plan, and the County Commissioners approved a ballot issue to raise the county sales tax to fund the local share.

The debate began and I participated in several presentations of the findings of the study. As an academic never before involved in very public policy analysis in very public organization, I naively thought that the careful analysis and the clear findings (which were never disputed) – Randy’s “merits”– would at least be given due consideration, if not persuading the doubters and skeptics.

But my education was just beginning, and Sam Staley served up the first object lesson.

Despite the fact that Staley did not live in the region and would not be affected by either the project or the taxes , he nonetheless showed up in public discussions and debates arguing that LRT was not a good investment. His argument centered on the costs (the starter line included a new bridge across the Ohio and a tunnel together at$130 million) relative to the projected ridership (22,000 annual riders).

He argued publicly that for that amount of expenditure and ridership, with average cost about $30,000 per new rider ($750 million /22,000), all of these new riders could be given a new car, and an Audi at that. Never once would he mention that the benefits of the light rail investment were twice as large as these costs (and without any network externalities), that despite the fact that he has had substantial exposure to Economics, and so knew better. It gave me new insight.
I have used this little anecdote on the first day in all of my classes, asking the students what is wrong with that argument. They ensuing discussion leads them to understand that all these new cars would not come with their own their own roads, their own parking, their own road maintenance, traffic control, etc., but that the rail investment included all of that. Further they realized that these new cars would worsen the congestion that the LRT was intended to alleviate.

As an academic, I tell the students that we go to school to learn how the world works, and to use that knowledge first to sell it (a job), and also to help make the world a better place. So to me Staley’s argument was intellectually offensive in the extreme, and I term it intellectually dishonest.

Today the issue of why even very well educated people such as Sam behave in such a manner is the subject of much current research in cognitive psychology and political science (see for example http://www.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_ba..., and http://www-personal.umich.edu/~bnyhan/nyhan-reifler.pdf).

Motivated by this experience, I read widely on the writings of other prominent anti-transit ideologues (never peer reviewed of course) and engaged in extensive on-line debates with some of them, doing exactly as Randy recommends – arguing the technical merits. And all to no avail. I subsequently wrote up my experiences at http://www.cfte.org/news/New%20Clothes%20of%20Libertarian%20Critics.pdf, and more recently a technical critique of a well known economist who also lets his ideology get in the way of careful analysis (http://www.vtpi.org/goddard.pdf).

So while Randy wants me to hew to the conventional academic values of arguing issues on their merits with the anti-transit ideologues, which I certainly prefer as does he, the truth is that the anti-transit and pro-highway crowd never argue the issues on the merits, but instead seek to misinform and mislead, often relying on seemingly plausible academic arguments, such as the public goods concept that set off this exchange.

Randy seems inexperienced in this regard. My view is that the scoundrels are the ideologues – I know that this view is shared by other serious observers of the rail transit issue. I would suggest that he develop some first hand experience in this regard.

These experiences plus the growing academic literature on the sources of ideology have led me to conclude that rational arguments with the anti-transit and highways-are-everything ideologues are simply fruitless and a waste of every intellectually honest person’s time. And so while I would never introduce such comments as those I have made here in my peer reviewed writing (they would properly be rejected), I have decided to be pointed and direct in calling out those who seek to misinform and mislead. I find that ideology, left or right, is the antithesis of my chosen profession and professional standards and is very offensive. It poisons the civic discourse. Randy should be as distressed as I about it.

I will leave it up to others to try to get Sam to indicate under what conditions he considers rail transit an appropriate addition to the urban transport mix.

Ideologues and discussion.

These experiences plus the growing academic literature on the sources of ideology have led me to conclude that rational arguments with the anti-transit and highways-are-everything ideologues are simply fruitless and a waste of every intellectually honest person’s time.

...

Randy seems inexperienced in this regard.

*Stands, golf claps, sits down*

Yes.

Yes indeed. Maybe that was the problem with the last abstract I submitted to JAPA

Best,

D

Waiting For Staley's Answer

"my best estimate is that Sam will never admit that we have invested too much in highways. Thus my comments about his misleading analyses of lumping all roads and highways together as public goods."

I would be interested in Staley's answer to this question. Do you think we have already build too many limited-access highways?

The analysis indicates we have. Staley admits that limited-access highways are private goods, not public goods. Yet we generally give highway use away for free - which means that we consume more than the optimum, just as we would if we gave away filet mignon or any other private good for free.

Initially, I accepted Staley's claim that he was just making a technical distinction between externalities and subsidies, and the he realized that subsidies are also distortive. But I am becoming dubious, since he refuses to clarify.

I asked for clarification earlier, ( at http://www.planetizen.com/node/44927#comment-13482) and he did not respond:

Staley: Charles (and Todd's) point about subsidies distorting signals and incentives are correct, but *this* post was not intended to focus on that particular aspect of the discussion. Rather it was to distinguish between public goods and externalities.

Siegel: I am glad to hear that. I think most of the criticism of your post resulted from a misunderstanding. I (and, I am sure, others) thought that when you said that roads are public goods like the court system, you were implying that public subsidies to roads are justified, as public subsidies to the court system obviously are.

I hope Staley will give us a final clarification and tell us that he was just interested in getting the technical definition right and agrees with us that we should deal with the current underpricing of roads and fuel by 1) eliminating subsidies and 2) internalizing external costs. For roads, we can do that with limited-access highways immediately and with local roads soon, when technology is in place.

It would be good to have Staley's answer to those two questions:
-- Does he agree that we have already overbuilt highways?
-- Does he agree that we should eliminate subsidies?

Charles Siegel

Samuel Staley's picture
Blogger

On subsidies and overbuilding

I apologize for not replying earlier, but I've been on the road for most of the last week in back-to-back meetings (including 4 days at Transportation Research Board in Minneapolis). I said earlier I would reply in another blog post, and I will, but let me state directly for the record that:
1) I believe we have over built much of our highway system in some places, and have many more to build in other places. I have explicitly written (especially in my coauthored book "Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century" that our current system is an inefficient way to build highways because it is not a true user fee;
2) I have been very explicit and vocal about my support for real user fees in form of road-pricing, including dynamic, time of day congestion pricing and replacing the current funding system with a distance-based fee (now spanning dozens of articles and two books);
3) I favor moving toward a system where supply-side subsidies are phased out as soon as possible and practical for the entire transportation network and limiting demand-side subsidies to specific groups to address equity concerns;
4) I will not engage Prof. Goddard on my academic or policy credibility. I'm happy to send anyone my CV off list (email: sam.staley@reason.org) so they can judge my credibility and background for themselves.
5) I generally do not engage in the threads on my posts because I learned early on in this process that the discussion is far more interesting and engaging by letting it evolve organically than inserting myself into the discussion. While engaging would satisfy my own ego, it would likely detract from the quality of the discussion. I usually bank the issues I want to engage for future full-fledged blog posts. Besides, I am not paid to write these posts (hence their lack of consistancy in timing) and they could easily consume hours I simply do not have without making unacceptable trade-offs with much coveted family time.

Summary judgement, worth what you paid

I am pretty sure I am the only person left in this room so before I turn off the lights, a couple of remarks for the empty bleachers. One, Planetizen must be happy. I mean these are not the hundreds of comments one of our grad students gets as the NYTimes Freakonomics transportation blogger on a typical post, but sometimes those are uninformed and mean spirited. A tradeoff.

Two, I disagree with Mr. Goddard that Staley's essay resists rational discourse. Indeed, Litman did so. I tried. Mr. Goddard did not try. I do like his suggestion that I am too innocent to know better. It is true I have not consulted on the one continent of Australia and maybe that would ruin me.

Three, I liked Mr. Siegel's thought experiment just as much as the first times I heard it from Walter Kulash and my other neighbor Mike McNally in the mid 90s. It still requires the incredibly implausible assumption that trip rates do not vary with trip lengths. Economists tested this (just as they test lots of things that you might assume, left to your own devices, that they do not), as did planners, where the latest evidence is summarized in the mentioned Ewing/Cervero 2010 JAPA paper (a streamlined summary of facts machine which I challenge anyone to find fault with on ideological or other grounds) and a late 2009 Transportation Research Board report, "Driving and the Built Environment," chaired by Harvard's Gomez-Ibanez and written by a chock of non-innocent experts.

Goodnight,

R Crane, UCLA

And perhaps one gets what one pays for

It was a somewhat interesting discussion that really turned into or eroded (depending on one's opinion) into a ".edu" discussion. I guess that's ok, but my takeaway from this thread is very similar to other threads on here and listservs which is: nobody has changed their mind about anything, nobody feels better educated, everyone's opinions and beliefs are very much as they began. It's human nature - people take in information from their own lenses and spin information to reinforce their own previously held viewpoints (so say "expert" psychologists). I'm no different. I think highways should be privatized and funded by user fees because I think it is best for society. I don't really give a lick about whether some guys did some study that "proved" it with a nice tidy adjusted R squared or that someone "disproved" it with claims of heteroskedastic models. I know that is where academics live, so to speak, and that's fine I guess. Don't get me wrong, there were some very smart posters who wrote dissertations I wouldn't care to write, but from a practical policy standpoint, Litman still thinks we should stop funding roads and start building transit, Goddard still thinks Staley is unreasonable and biased, Staley still thinks we should build roads with user fees and building rail transit in most cases is a waste of money, Charles still thinks we are doomed on our current course with global warming, Dano is still convinced that anyone who doesn't advocate smart growth and transit is funded by big oil and highway lobbyists, Wodehouse still thinks density and growth boundaries stink, and Crane still thinks everyone is saying the same thing. You know where I stand and as much as I would love to admit I am mallable, I have thought about it enough to know this is what I believe and why I believe it. Good luck.

Learning from Discussions

I am sure most of us can remember when we were in college and were forming our opinions. That is when ideas like these have the most influence on people. The discussion of ideas is important, even though it doesn't change the minds of those of us whose minds are made up.

I also think I have learned a couple of things from this discussion: eg, to distinguish more precisely between subsidies and externalities.

Charles Siegel

Trained Incapacity In "Driving and the Built Environment"

It seems to me that there is an obvious flaw in research you cite. "Driving and the Built Environment" says about "Growing Cooler" by Ewing et. al:

"the coarseness of the level of analysis (urbanized area), the quality of the data, and questions about their model specification limit the reliability of these results. To minimize or eliminate the aggregation issues that cloud the relationship between the built environment and travel behavior, many studies use disaggregate data-household-level travel data and neighborhood-, census tract–, or zip code–level data on the built environment-in regression models, controlling for a much richer combination of socioeconomic variables available at the household level."

Considering disaggregated data from small parts of the city, rather than the entire metropolitan area, allows for more statistical analysis (which is why experts on statistical analysis like to do it), but it seems to me that it misses an obvious point that I already made:

"That research looks at driving in existing regions. Even if you live in a New Urbanist suburb, you have to drive long distances because the region as a whole is low density. My thought experiment was meant to compare what it would be like if the entire US (or an entire region) were built as New Urbanist suburbs or as sprawl suburbs."

To give an example of this point:

--People who live in San Francisco drive much more than they would in an entire region with the density of San Francisco, because they often have to go to remote, low-density suburbs in the region.

--People who live in the low-density suburbs of San Francisco, such as Pleasanton, drive less than they would if the entire region was the same density as Pleasanton because of the high density of San Francisco. I sometimes see people from Pleasanton on BART going to baseball games in San Francisco; if San Francisco were as low density as Pleasanton, they would have to travel a longer distance to the baseball game and they would undoubtedly drive.

The high density of San Francisco reduces driving in two ways: 1) it reduces driving by people who live in San Francisco, 2) and it also reduces driving to some extent by people who live in the entire region. The same two effects occur with any higher density development: it 1) reduces the driving by people who live there and 2) reduces driving by everyone in the region somewhat by reducing the overall area of the region. Studies that disaggregate the data and look at VMT and density in smaller areas, such as individual census tracts, miss effect #2.

I did not read the JAPA article that you mention, because it requires a subscription, but I suspect that it makes this same error.

About trip frequency, I see that the "Driving and the Built Environment" says:

"Ewing and Cervero note further that socioeconomic factors are dominant in trip frequency decisions, whereas the built environment appears to be more influential with respect to trip length; mode choice depends on both factors."

People will make the same trips to work and for shopping regardless of density. Lower density might eliminate a some trips: people stay at home and watch TV rather than taking the trouble of going out. On the other hand, higher density might shift some trips to walking and other modes. These two effects might balance each other out, so it is not at all self-evident that the somewhat lower trip frequencies in lower density areas invalidate my thought experiment.

Incidentally, I didn't know that Kulash used the same thought experiment. I am a great admirer of his, so I am glad to hear it.

Finally, though I prefer to deal with facts rather than with personalities, I have to point out that someone who complains about the "cheap shots" of others should not indulge himself in a long series of cheap shots:

--I liked Mr. Siegel's thought experiment just as much as the first times I heard it
--Economists tested this (just as they test lots of things that you might assume, left to your own devices, that they do not)
--written by a chock of non-innocent experts.

So I will reply with a shot of my own: Thorstein Veblen said that the work of many of economist-experts of his time suffered from "trained incapacity."

When studies of density and VMT use dissagregated data that allow more statistical analysis but that miss a major effect of higher densities, that seems to me to be a perfect example of trained incapacity.

In the future, let's both try to stick to facts and to reasoning - and to avoid cheap shots.

Charles Siegel

Tepid Response

A cheap shot is an unfair statement. It is not a wry observation at your expense.

The 2010 Ewing/Cervero JAPA paper (by two of the leading pro-transit scholars on the planet) is supposed to be free to nonsubscribers here: http://www.informaworld.com/smpp/section?content=a922131982&fulltext=713.... I hope so.

You are certainly right to complain that the best empirical work to date isn't good enough to make firm conclusions about policy, a position I've made for 15 years. But you are then on thin ice to say you nonetheless like the work of Newman and Kenworthy, which almost everyone agrees is on shakier methodological and data grounds still, just because you like their results. You point out a problem with data that aggregating does not really resolve: The strategy, it seems to me, is to keep trying to do better.

Finally, your thought experiment is not a bad model, as such. You like it because it seems adequate for the purpose of coming to a conclusion you like. However, having nice geometric properties does not mean it is either accurate or useful. I pointed out a deficiency in your reasoning, what you might call an error, which you've ignored. Further, lots of studies use region-wide data. I hesitate to say it, as you might consider it unfair, but you just don't seem that familiar with this literature.

People reject the scientific method and the academic peer review process for various reasons. It's pretty clear that some on this page do so because they don't like the results. That's a valid perspective too but let's not pretend it's something other than what it is. JAPA, where I don't yet actually work, tries hard to produce valid, credible practice-oriented research that has passed peer review. People can complain that it doesn't support their pet theories or presuppositions, or that it does, but that isn't its job -- which is to make progress about what we do and don't know, by widely accepted standards of validity and utility. If you thinks a study falls short, you are free to improve on it.

I thank Sam Staley and Planetizen for providing an opportunity for these exchanges. Perhaps as a commenter said, no one's position changed much if at all. But as a teacher, I find it valuable to see those positions out as clearly as possible, especially in juxtaposition. Readers with open minds will find the cacophony instructive.

Density and VMT - Precision and Breadth of Knowledge

Thanks for the link. The 2010 Ewing/Cervero JAPA paper makes the same basic conceptual error that I mention above, saying that the neighborhood comparisons are more reliable because they allow for better statistical analysis (p. 269, end of page), overlooking the fact that neighborhood comparisons miss an important effect of higher density, as I say above:

"two effects occur with any higher density development: it 1) reduces the driving by people who live there and 2) reduces driving by everyone in the region somewhat by reducing the overall area of the region. Studies that disaggregate the data and look at VMT and density in smaller areas, such as individual census tracts, miss effect #2."

Do you agree that this is (or may be) a conceptual error? If so, it might make sense to find someone to do a metastudy of the regional and neighborhood comparisons for JAPA, to start the academic discussion of this issue.

It is certainly true that I am not as familiar with all the studies of VMT vs. density as the average JAPA contributor is. I don't consider it unfair of you to point that out.

But you saw by reading my book "The End of Economic Growth," I am more familiar with international comparisons of health care and education than the average JAPA contributor is. I don't have as precise knowledge as the experts in each field, but I do have broader knowledge, which helps me see the pattern of counterproductivity that applies across the fields.

It is useful to have some people with precise knowledge and some with broad knowledge. I think the universities have gone too far in the direction of producing experts who have very detailed and precise knowledge of a very narrow field.

I notice that you say "the best empirical work to date isn't good enough to make firm conclusions about policy, a position I've made for 15 years." Yet the Ewing/Cervero JAPA paper says "There are now more than 200 built-environment/travel studies, of which most were completed since our 2001 review." If there aren't enough now, I don't know when there will ever be enough empirical studies and statistical analyses to make firm conclusions about policy.

If you step back and look at the big picture rather than doing statistical analysis, it is very clear that much of our sprawl and much of our driving has more costs than benefits, as I said initially. Sprawl suburbs have small or negligible benefits in livability compared with walkable suburbs designed like the streetcar suburbs of 100 years ago. But sprawl suburbs have significantly greater environmental costs than walkable suburbs. (We can see those costs are significant, even if it will take endless statistical studies to quantify each of those costs precisely. If someone gets bogged down in those studies, they are not seeing the forest for the trees.)

I think we all tend to be biased toward reasoning and data that let us come to the conclusion we want to come to, and I don't claim to be immune. But I like thought-experiments primarily because they let me step back and look at the big picture.

As I said, I think both are important. I appreciate people who have the patience to wade through endlessly detailed statistical studies, and I definitely do appreciate your pointing out those summaries of the existing studies to me. I certainly have learned something from this discussion.

I hope those who do detailed statistical studies also appreciate people who look at the big picture.

(Since you say "People reject the scientific method and the academic peer review process for various reasons," I will mention that I do not reject this process, and I have had a book published by a university press after going though academic peer review - but it was about child care, not about city planning: "What's Wrong With Day," Columbia Univ Teachers College Press, 2000).

Charles Siegel

Conceptual Error in Studies of Density and VMT

I thought of a good example of this issue: Holtzclaw's study of the effect of density on VMT compares parts of San Francisco with the low-density suburb of San Ramon, looking at how much people who live in these two places drive.

But people from all over the SF Bay Area commute to both these places. Most people who commute to downtown SF take public transportation, because it is so hard to find parking there. Virtually everyone who commutes to the office parks of San Ramon drives, because of its low density and remote location.

The different densities of these two places clearly affect VMT of the entire region, not just of the people who live in these two places.

In fact, there are two effects on the entire region:

People who travel to high-density places are more likely to take transit, as in the example of commuters to San Francisco and San Ramon.

Lower densities increase the area of the entire region and so increase trip length for many trips in the region - including trips that are not to the lower density area. Eg, if San Francisco were not a city and all its people lived at sprawl density instead, the entire developed area of the SF Bay region would be larger, so people would travel further on many trips, even if they were not traveling to San Francisco.

As I have said, most studies of the effect of density on VMT look only at the VMT of people living in neighborhoods of different densities, and so they understate the effect on the region as a whole.

Charles Siegel

Comments on Studies

Write up your comment and send it in, Charles. Randy will see it and hopefully it'll get published, despite my experience with the climate change issue......

Best,

D

Pecuniary externalities and public policy

Two comments on the follow observations:

a) Randy Crane says “I was raised that pecuniary externalities are not real, plain and simple, and your discourse is less than clear on this.”

b) Staley states about Michael Lewyn’s post” Externalities, Meet Externalities”: “Low density housing is not necessarily an externality created by minimum parking requirements. It may be a consequence of policy because it accommodates automobile travel, but whether this qualifies it as a negative externality is problematic”

and

c) “In this case, parking and low-density housing is not an externality but reflects collective values expressed through the political process and is a policy outcome. Just because an outcome is undesirable or unanticipated doesn't make it an externality”.

and

d) “it's important to recognize the difference between undesirable impacts that may result from policy choices and true negative externalities which are costs imposed on third parties without their consent”

First, it matters not one wit whether the effect is a policy choice or not. After all, a polluter has made a policy choice not to control its emissions. If the polluter were a public enterprise (e.g., waste water treatment plant), nothing is changed about the nature of the externality.

Second, the widely held conclusion that pecuniary externalities are not relevant (Pareto relevant technically speaking) depends on forgetting or ignoring the basic requirement for the conclusion to hold: all markets must be perfectly competitive and complete – no missing markets for any scarcity and risk, present and future. These conditions are never fulfilled, and so policy induced distortions such as minimum parking requirements do indeed create externalities. Nothing problematic about them.

This is been convincingly shown by Greenwald and Nobel Laureate Stiglitz in their piece “Externalities in Economies with Imperfect Information and Incomplete Markets”, The Quarterly Journal of Economics, May 1986, pp. 229-264.

So Michael Lewyn is on very firm ground in noting that minimal parking requirements create externalities.

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