Cordon Blues?

Envy the lucky travelers of London. As you may know, in 2003 the city imposed a congestion toll of £5 (later raised to £8) on all vehicles entering the central district. In 2007, Transport for London, a government agency, did a cost-benefit analysis of the impacts (find the full report here).

It found the following about costs per year to travelers in the central district:

  • Individuals and business travelers pay about £236 million in tolls.
  • Some trips to the area are canceled, costing would-have-been drivers the equivalent of about £31 million.
  • It costs motorists and firms £19 million to comply with the system.
  • Total burden on travelers: £286 million.

And now the benefits to travelers:

  • Drivers (individuals and businesses) reap benefits from saved time and improved travel reliability of about £260 million.
  • Drivers save £28 million in vehicle operating costs.
  • Bus riders save about £43 million worth of time.

This adds up to £331 million in savings. Please note that even the driving public (who, after all, pay the tolls) come out slightly better than if the tolls did not exist.

Even if the considerable benefits to bus riders are ignored, and even if all the revenue were tossed onto a giant bonfire (or, even worse, sent off to the EU to subsidize French farmers), auto travelers win out or, at the very least, are no worse off.

But the money does not disappear; government nets a profit of £47 million (after excluding items like operating costs, infrastructure expenditures, and lost tax and parking revenue). Obviously, this money can be used for many worthy causes, transportation-related and otherwise. And there are other social benefits: reduced accidents and pollution are worth about £17 million.

This study isn’t perfect; it excludes changes in the business climate for stores and other firms within the cordon. And after all, it was performed by Transport for London, which is hardly a disinterested party. But the numbers are probably in the ballpark, and they indicate that cordon pricing for the central area nets society about £99 million per year in total benefit.

The reaction of the British public to this win/win/win situation has been vigorous and spirited:

  • Eighty percent of Manchester voters recently voted no on a cordon pricing proposal, a level of unpopularity among Mancunians that even the Liverpool football club would find hard to match.
  • In 2005, 75 percent of Edinburgh voters rejected a cordon charge.
  • London Mayor Boris Johnson recently conducted a survey on expanding the London Congestion Charge Zone and found that 67 percent of respondents were opposed. Johnson scrapped the plans and is toying with reducing the size of the existing charge zone instead.

Why such ingratitude, British drivers? There are a couple of possibilities. First, people may not be appreciating their time savings. While the out-of-pocket expenditure on the tolls is very visible and quite annoying, there is very little way for drivers to see what traffic and delay would have been like without the tolls. Plus, many people underestimate the monetary value of their time.

Second, there are admitted distributional concerns. Pricing detractors are right to suppose that this policy will disproportionately benefit the well-off. This is due to the smaller burden the tolls place on the wealthy’s personal finances and the higher monetary value of their time.

The equity argument is probably the most powerful weapon in the antis’ arsenal. And it is the one which proponents of the policy have the toughest time answering. Like it or not, it resonates politically. Perhaps this is what rankles British voters.

For these reasons, it may be premature to think about tolling entire downtowns or freeways. A better plan is to concede that we won’t get the most economically efficient, toll-everything outcome (sorry, transportation economists). Instead we should settle for tolling only portions of facilities while leaving the remainder of them au naturale.

Were, say, two lanes of a four-lane freeway tolled and flowing and the other lanes free but congested, the time savings your money buys you would be very visible to drivers. Equity concerns would be blunted since the poor have a free option. In fact, low-income folks would be better off than before, thanks to the chance to use the toll lanes when really necessary, express bus service in the toll lanes, and increased throughput there.

This would leave a situation in which the rich might disproportionately benefit, but all are made at least somewhat better off. This would probably seem equitable to all but the most egalitarian thinkers.
Perhaps this is why polls conducted after the opening of California’s SR91 toll lanes found that the concept was supported by over 70 percent of corridor drivers — including a majority of those who used the free lanes exclusively. Unfortunately for London, none of those satisfied customers are registered to vote in the UK.

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  1. M.B. says:

    There are some pretty broad (questionable) assumptions behind those numbers, especially the £236m and £260m. The analysis places little value on the loss of personal freedom from the government intrusion.

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  2. Michael says:

    I-15 in Utah has a car-pool lane which single riders can ride in if they pay a fee.

    I think it would have the effect mentioned in this article if it weren’t for the fact that all 3 lanes AND the car pool / fee lane come to a standstill during rush hour. The car pool / fee lane is the last to get slow down and then stop though.

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  3. DF says:

    I think economists over estimate the monetary value of people’s time.

    I mean I am on a fixed salary, outside of work, ten minutes here or there makes no difference to me. It is probably eating into time I spend watching television or something.

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  4. Charlie says:

    On route 95 south of Washington D.C. there is a commuter freeway in between the north- and south-bound lanes. You are allowed to use it with 2 or more people in the car heading north in the morning and south in the evening.

    If you have 2 or more people in the car and you get into the commuter section, you really move. Most commuter lanes are only one lane next to the existing highway. This is two lanes, so you can pass people driving too slowly – truly wonderful.

    You can really move in these lanes because there is nobody in them. Nobody car pools. Nobody ever has. And it will get more unlikely as jobs become ever more time-flexible.

    I would love to see the commuter lane turned into a toll-lane. I bet a lot more people would use it and the state would collect money for a road that has already been built.

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  5. libert says:

    As a former resident of London, I’d like to point out another benefit that was not considered here: increased economies of scale on the London bus system.

    Pricing driving led people to take buses more. Since buses tend to have low marginal costs, the increased utilization drove down per-rider costs of operating the system. In response to these lower costs, Transport for London was able to cut bus fares.

    So not only did I save time as a bus rider, I also paid less!

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  6. JRH says:

    In South Florida, I-95 (a free highway) runs parallel to the Florida Turnpike (a toll highway). As you’d expect, the Turnpike is much less crowded and so traffic moves along quicker (although at rush hour even the Turnpike gets congested).

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  7. Brendan says:

    “people may not be appreciating their time savings”

    If people do not appreciate their time savings do the time savings benefits really exist…

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  8. gevin shaw says:

    Those who can afford the toll buy their convenience from those who can’t with reduced access in the form of longer commutes and cancelled trips. There is no benefit in not having to pay $4,000 a year (for a daily trip) you can’t afford anyway. Time is money only if you’ve got the money, and the poor will have to find their work and their services elsewhere, or spend more time getting there than before, for the benefit of the impatient.

    It is a blind spot of economists, evident in lumping commute time savings with business travel time savings, that not all opportunity costs are recoverable. If someone’s commute takes longer, that doesn’t mean he gets less work done, it means he has to leave home earlier and get home later. Each commuter had made this cost/benefit analysis pre-toll. The toll allows those who can afford it to transfer time lost with their families to those who can’t afford the toll. It is, if you will, a regressive time tax.

    I wonder what arrangements for toll pooling have been created, allowing different people to make use of a single car that has been charged that day’s toll.

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