Do Economists Agree On Road Pricing?

Author Robin Lindsey writes in her abstract: "My search of the economic literature did not find a soul who favours traffic jams. Moreover, I find strong consensus among economists on how to reduce traffic jams. Especially in light of modern electronic toll collection, they believe in pricing highway capacity as a scarce resource. Beyond that primary insight, however, there is much disagreement.

Economists disagree over how to set tolls, how to cover common costs, what to do with any excess revenues, whether and how 'losers' from tolling previously free roads should be compensated, and whether to privatize highways. These disagreements fill a lot of pages, while the main point of agreement is largely taken for granted. Practically all economists who write on the matter agree that where there is significant congestion on highways, the price should not be zero."

From the paper:

"The flurry of interest in road pricing over the last decade or so might suggest that road pricing is an idea whose time has come (or, rather, come back!). Intercity toll roads are prevalent today in Western Europe, Mexico, Japan, China and other countries. And a number of projects are now either under development, or have been proposed, including area-wide tolling for Britain and the state of Oregon using Global Navigation Satellite Systems (GNSS) technology. Yet, despite the historical tradition of tolls and the longstanding theoretical argument for road pricing, only a few cities have implemented road pricing in any form, and the number of schemes designed to control traffic congestion is even fewer.

From the conclusion:

..."This article has surveyed the literature to determine whether economists support road pricing both in theory and in practice. There is a strong consensus among economists that road pricing ought to be used to reduce and manage congestion. This position has strengthened as technology has reduced the costs of collecting and paying toll charges. Beyond that primary insight, however, there is much disagreement."

..."Most economists now accept short-run marginal cost as the appropriate basis for pricing transportation generally, and roads specifically. However, most economists also entertain departures from SRMC pricing in its strictest sense, and there has been much interest recently in developing practical models of second-best pricing. There also remains a residual tension between the goal of allocative efficiency, which is best served by SRMC pricing, and the goal of cost recovery which calls for average-cost pricing at some (often ill-defined) level of aggregation over modes and user groups."

..."This is an exciting time for road pricing. Opponents may hope that present efforts will fail and another chapter in the long history of unsuccessful road pricing attempts will be written. Devotees of Pigou and Vickrey will hope that public toll roads or other forms of road pricing will flourish to tame the congestion beast. And admirers of Friedman and Boorstin will look forward to a resurrection of private toll roads that ruled in the turnpike era."

[Editor's note: The link below is to the May, 2006 issue of Econ Journal Watch (EJW) in its PDF format. This article appears on pages 292-379 of the issue.]

Thanks to Peter Gordon's Blog