Emory Report

August 7, 2000

 Volume 52, No. 39

First Person

Let markets solve traffic, pollution

Richard Muth is Callaway Professor of Economics

Recently there has been considerable discussion of regulating the growth of urban land. The most recent manifestation is the forum on so-called "smart growth" held at Emory in May. Those who would limit growth usually cite traffic congestion and air pollution as problems resulting from unregulated growth.

Though they are exacerbated by growth, congestion and pollution themselves are the real problems, and even if the Atlanta area were to remain its present size, we would be faced with congested freeways and dirty air. These issues need to be attacked directly.

Most means commonly suggested for solving traffic congestion are seriously flawed. Years ago Californians learned that building additional freeways only generated more traffic. An evaluation of the San Francisco Bay area's rapid transit system 30 years ago suggested it would be cheaper to buy each of its riders an automobile. Numerous academic studies have reached the conclusion that fixed rail systems are economical only in densely populated cities, such as New York and Boston, that already have them. Reserved lanes for buses and carpools go largely unused even during rush hours.

Many years ago, my office in the Washington, D.C., area looked out over the then-named National Airport. In the evening as I prepared to return home, I would look out at a line of 10 to 12 commercial airliners waiting to take off, yet I often saw little indication of another aircraft in the vicinity. After several minutes, a private plane would land. Using National Airport, which is close to the center of town, was a great timesaver for the occupants of the aircraft, yet their timesaving resulted in delays for hundreds of other air passengers.

Freeway congestion is much the same. I have often taken the freeway during rush hour to travel only two or three exits because it is faster for me than to use regular city streets. Doing so is perfectly rational from my point of view, but like the private plane delaying hundreds of commercial air travelers, my entering the freeway during congested periods delays many other drivers. Though I take the cost to me of my time into account when making my travel decisions, I am not forced to consider the additional driving time I impose on all other travelers.

For well over 20 years, some cities such as San Jose, Calif., have limited access to freeways during congested periods through the use of traffic lights on entering ramps. Doing so limits freeway traffic during congested periods but results in additional trip times for some drivers.

A far better scheme, in my judgment, would be to charge an explicit monetary toll for using the facility. This has been done for some roads such as the New Jersey Turnpike and the portion of GA-400 that lies inside the perimeter. With few exceptions, the use of tolls has been limited to defraying the costs of constructing a road or bridge, and tolls are inefficiently collected by requiring drivers to stop at tollbooths. The latter adds to driver delays, rather than ameliorating them, as anyone who has crossed the San Francisco Bay Bridge during rush hour can testify.

The principal exception to the use of tolls came into being in Singapore around 25 years ago. There, motorists who entered a certain central zone of the city during morning commuting hours were required to display a sticker, rather like a parking sticker, which cost approximately $100 U.S. per month.

The introduction of this scheme had dramatic results. The number of cars entering the central area declined to roughly 20 percent of its former level. Interestingly, there was little change in public transit use but a marked increase in carpooling. Though much more sophisticated schemes for regulating highway traffic are possible, this experiment graphically showed the potential for traffic reduction by charging tolls.

Many will find it puzzling that no significant increase in public transit use took place in Singapore when highway tolls were introduced. A little consideration suggests the answer: In most instances in the United States, so-called public transit systems are operated by public or quasi-public agencies. Their aim is to minimize the money costs of transit-consisting mostly of labor costs of operators. Consequently, relatively large vehicles are used.

The use of large, 50-seat buses means both that relatively few potential routes are operated and that buses on these routes run infrequently. Riders must spend time getting to and from bus stops and waiting for buses to arrive. One can imagine what commercial air travel would be like if only 747s carrying 400 passengers were used on domestic air routes. Many routes now operated with smaller aircraft would not be flown, while those operated would be flown much less frequently than they now are.

The principal exception in this country is the carrying of air passengers by ground to and from airports. Just as in the air, transit to and from airports is provided by a variety of vehicles, from 50-seat buses on heavily traveled routes to three- or four-passenger limousines on more lightly traveled ones. And, like travel in the air, travel to and from airports is usually provided by private firms. These are forced by competition to recognize what public officials usually don't-the time of the traveler is an important input into producing what we call transportation.

The solution to public transit in U.S. cities, I suggest, is to allow private business to enter freely into its production. At present, only taxis are allowed to do so, and their numbers are highly limited, as indicated by cost of taxi operator licenses in New York, which range into the thousands of dollars. Anyone who has witnessed the operation of so-called jitney buses in lesser-developed countries, as I have in the Manila area of the Philippines, realizes the advantages of private enterprise in producing so-called public transport.

Air pollution in urban areas can also be regulated by relying on prices and markets. For years, economists have recommended that those who impose costs upon others be taxed to reflect the magnitude of these costs. Congestion tolls for urban auto transport is one example of such a tax.

Vehicles in Georgia are now inspected biannually for emissions; as an alternative to the current pass-or-repair system, vehicles could be charged fees that increase with the amount of their emissions. For some that now pass, it might be cheaper to repair a vehicle than to pay the tax; for others that fail, paying a tax might be cheaper. In this way, a given reduction in pollution would be achieved as cheaply as possible. Non- or low-polluting vehicles, such as those powered by electricity or natural gas, might be exempt from the fees.

Another technique that especially recommends itself for fixed-source polluters is the requirement to purchase licenses for atmospheric discharges. Potential polluters would bid for such licenses, and the licenses would be transferable among emitters. In this way, any given degree of pollution reduction would be achieved in the least costly, least intrusive way. Such a system, I understand, is now in limited use in Southern California.

Guiding individuals and business firms by market prices is a powerful system for regulation, one whose worth has been vividly demonstrated in most areas of economic activity. Bureaucratic devices such as the Georgia Regional Transportation Authority have been found wanting. We would do well to adopt prices for controlling urban transport and air pollution instead.

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