Road Pricing
About a month ago, I visited Dubai on a business trip. The city is so beautiful, safe and clean. The roads sever congestion during their long rush hours, however, is a headache. A friend of mine told me that the municipality will start charging a fee for passing through certain congested roads in attempting to reduce the traffic jam. She reminded me of the following article that discusses the mechanisms used in several developed countries to address this issue:
“The governments normally provide some goods and services for free, but this does not mean that every one can have as much as they like all the time. Unless the amount supplied equals the amount demanded at zero balance, excess demand will develop. Allocation of the available quantity will have to be handled by some non-price allocation mechanism. Examples include waiting lists for health services and congestion on the roads.
In the seventeenth century, many main roads in Britain were turnpikes and travellers had to pay a fee to travel on them. This fee was used to maintain the road. Throughout the twentieth century, road provision in the UK has been paid for by the state out of revenue from general taxation. (Specific taxes on cars such as the road fund licence have not been linked directly to expenditure on roads). Some other countries have charged on some major roads such as the autostrade of Italy, the autoroutes of France, some turnpikes in the United States, and new motorway in Mexico.
The recent growth of car ownership has been such that demand for road use continually outstrips supply when the price of using the roads is zero. For example, the M25 orbital motorway around London has had frequent jams from the day it opened. Also, many town centres suffer severe traffic congestion during rush hours and in some cases most of the day.
This congestion is, in effect, rationing by queuing. It imposes the highest cost on those whose time is most valuable. Road pricing can be used to reduce the quantity demanded to the available supply. Users are then able to use road services without congestion. Travellers with essential business and other urgent needs will pay. Others will take less crowded routes, use public transport, or postpone their journeys.
Many roads are congested at peak periods but have excess capacity during off-peak periods. If the price for using such roads were higher in periods of peak demand and lower in off-peak periods, demand would equal the given supply during both periods. A form of this type of pricing has been operating for some time in Singapore – a country with many people but little space. Licences to drive only at weekends are considerably cheaper than licences to drive at any time, and there is a surcharge for driving in the central area during peak traffic times. Also, the number of licences issued is limited. As a result of this and other supporting measures such as a first class public transport system, Singapore has one of the few urban road systems in the whole of southeast Asia that is not heavily congested and pollutes. In contrast, Bangkok and Manila are suffering near traffic paralysis from road congestion.
Pricing of specific bits of road with limited access presents no technical problem. Hence, for example, the UK already has tolls on the Seven Bridge, the Dartford Crossing, the Forth Bridge and the Mersey Tunnel. The pricing of road use in cities presents greater problems. But in February 2001 Mayor of London Ken Livingstone announced that from February 2003 drivers will be charged 5 pounds per day to enter central London. At the same time he predicted that congestion would be cut by 10 to 15 percent and delays would drop by between 20 and 30 percent. Cameras will be used to monitor access. Eventually some form of electronic measurement of road use more generally may be possibly.
Free goods can be consumed without restriction only if the supply continues to equal (or exceed) demand at zero price. Where the free good is a gift of nature, pricing soon appears when the resource becomes scarce. Where the free good is provided by the state, pricing is often preferable to other rationing mechanisms. It leads people to economize on the use of the scarce resource and ensures that those who value it most highly will be its most frequent users.”
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