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Again & again on congestion pricing

This Age journalist complains about the $18 cost of his son’s cross town journeys to visit his girlfriend. His diagnosis of the problem is, however, wrong. The costs of using CityLink in Melbourne are based on guaranteeing a secure profit for Transurban. The objective is cost-recovery with a margin. The more sensible reason for road pricing is to address traffic congestion in which case, if his son travelled away from the peak, he would pay nothing. Congestion should only be priced if there is congestion.

Monsieur Dupuis in the 18th century understood that, without congestion, public goods like roads should be provided free but funded from the public purse using taxes. Then people are not charged for use that exceeds the marginal cost of providing a facility.

User pays is not generally a sensible proposal for roads because it violates this last requirement. People are inhibited from using a road if the value to them of use is positive (though less than the road toll) even though their social cost from congestion of using the road is zero. It is better under these circumstances to provide the road for free and to only charge when there is congestion.

I think roads should be privately constructed but managed by the government on the basis of congestion charges. Given that private owners already own most of Australia’s toll roads a “second-best” way out would be to force their operators to congestion price perhaps by making a lump-sum compensation from government to compensate for any profitability losses. The latter compensation should not be that expensive since operators, as local monopolists, will appreciate the opportunity to charge high prices on roads that are in high current demand and this is roughly what congestion pricing requires.

http://www.smh.com.au/business/the-economy/ppp-plundering-takes-its-toll-on-love-20160212-gmshyp.html

2 comments to Again & again on congestion pricing

  • derrida derider

    Economic commonsense, but politically absolutely mad. Think of the optics – “we’re going to give Toll a bucket of your money while telling them to price gouge you to the nines on your daily drive to work, all so they’ll let you travel for free at the times when by definition you hardly use their road”. It would be extremely courageous in the Sir Humphrey sense.

  • Chris Lloyd

    Great post Harry.

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