The Right Price for Parking

The City of Austin sells valet parking companies the right to use a parking space for $250 per year. Is that the right price? I doubt it.? The appropriate price would be the?opportunity cost – which is at least the revenue raised if the slot were open to the public and metered. It may be much more than that. The only sensible way to determine the appropriate price would be by some kind of auction, including allowing private citizens to bid.? Their bids, plus the competition among valet parking companies and the restaurants that contract with them would help the price reflect the value of the space more closely. As it is, the average driver/parker is probably subsidizing restaurant customers who use valet parking, the restaurants themselves and the valet parking companies.? A classic problem – the same one that used to describe spectrum giveaways before we started auctioning frequencies. (HT: CW)


Does the valet company get the parking space for the entire day, or just (say) after 6pm?


The appropriate price would not be the opportunity cost as you state; the appropriate price would be found where marginal revenue (from the sale of rights to an additional parking spot) was equal to the opportunity cost. With a downward-sloping demand curve this would occur at a price level above the opportunity cost.


The above assuming, of course, that the city's goal is to maximize revenue from the parking spaces.


I'm sure the valet companies don't lobby for this advantage at all.

Drill-Baby-Drill Drill Team

If I paid the City of Austin $250. would they permit me a specific reserved parking spot 24/7/365 for a prime downtown city location?

....Not even the Mayor can expect such a deal.

In NYC a privlege like that would probably go for over $100,000 per year for some fatcat at Goldman Sachs.

The real shysters get an ACL tear from playing basketball, get knee surgery, and keep the Handicap Parking Plate for a decade.

Garvit Sah

The actual price discovery could best be made by way of an open auction though whether it really represents the value could be debatable. Private citizens, for example, might not want to bid for parking spaces far from their places of residence of work.

The current scheme could be looked upon as a means of subsidizing the restaurant businesses and might be a factor in their success as not many restaurants might be able to pay the market determined price for the parking spaces.


My guess is that the restaurants aren't giving away the valet parking for free either (at least they don't around here). So, the restaurant is capturing alot of the excess utility above the artificially set ceiling price in the demand vs supply curves.

It seems like the city could accomplish all of the same economics effects much more efficiently by auctioning off the spaces, and then giving tax breaks to restuarants.

Of course that ignores the economic effect that probably has the biggest impact on the policy: political contributions from restaurant owners to city politicians.

Ian Kemmish

The idea of an auction is indeed obvious. In fact, it's so obvious that my first inclination is to think that they used to do that but it didn't work and they changed.

Did you bother to phone them up and ask before committing pen to paper? If not, why not?


How can the author fail to understand that parking space pricing is INTENDED to be a service to the restaurant industry and its customers? This is more than a little simple. Duh.


If the City of Austin's sole purpose was to raise money it could auction them off to the highest bidder, whomever that may be. If the City, however, wanted to allow a larger number of citizens the ability to park in a certain area, then a mixture of metering and valet might seem appropriate. Valet parking allows for the sustainability of businesses that lease them, which benefits the community in jobs , taxes, and quality of life.

Eileen Wyatt

Where does the city of Austin make its real money -- on parking fees or on sales tax from having a vibrant eating and shopping district?

When parking becomes onerous in relation to the value of the attractions, customers head to the suburbs where parking is free. A handful of cities with excellent mass transit, very high density, and strong tourist value seem to avoid this effect (NY, San Francisco, Chicago), but most cities have to worry about maintaining a healthy sales tax base within the city limits.

William McClain

There are a few problems with this analysis.

The first poster hits the first issue, which is that there is no way that the $250 a year is to own the rights of a parking space all the time. Some valet companies may operate for large hours - lunch and dinner runs at a restaurant - but a great many probably only operate during dinner hours.

That's not to say that meter-rates might be higher even with those limited hours in place. But the opportunity cost isn't just the revenue given up in the form of meters. It may also consist of the decrease in costs of parking enforcement by having high volume streets with steady turnovers paid in front. Instead of requiring on several traffic enforcers to focus on one or two strips of street that are constantly changing, those officers could cover a wider area.

All of these things still may not make the opportunity cost in balance with the $250. But since this is a government decision, it also has to take into account how this program may help its constituency. Restaurant-goers who don't have to keep an eye on the meter and business-owners that rely on convenient parking to thrive might see these services as a benefit.

All of these issues make it possible to have that $250 be a more balanced price than presented. Any number of market forces that make up government policy and accounting could account for this other than the raw data of how many quarters would've been collected. An auction may seem nice, but it could end up creating a fake market as opposed to satisfying a real one.



By "right" price, you presumably mean the price that would maximize city revenue.

However, if what we mean by "right" is socially optimal accounting for all externalities (congestion, air and noise pollution, accidents, intimidation of pedestrian and cyclists, etc), then the "right price" would probably involve a much higher price on publicly provided parking spaces along with a tax on privately-provided ones. Afterall, parking and miles driven are highly correlated.

PS. Really like your work on the beauty premium. classic stuff.


Given the unfortunate lack of worthy dining in Austin, this is a windfall....or an incentive to sample.

Chris W AKA CW

I'd buy a downtown spot for $250 a year. Even at $6*300 days/year, that would be a handy profit and convenient. You think I could hire a urban gentleman to work my spot for $1 an hour? Or even on the flip side, $5 per car + security as well? Either would still be profitable.


Piotr Orloff

That would make sense if you are against small business subsidies. The parking spaces likely provide an affordable means for restaurants to gain extra customers and provide low cost valet parking. This probably makes them more successful and viable, while simultaneously increasing tax revenues for all layers of government.

Eric M. Jones

When we have robot-controlled cars, we won't need parking...they can just be programmed to drive around the block endlessly.


The city acquired the parking spot when it was deeded for right-of-way by the adjacent landowner (maybe still the site of said restaurant).

The purpose of the land donation was to provide commercial access and connectivity to commerce, while shifting the cost of maintenance to all users in the form of fuel taxes and property taxes. So the restaurant owner is "renting" back his own former land - without shouldering all the maintenance costs like pavement replacement, storm water collection/treatment, meter purchase and maintenance (they aren't cheap), parking law enforcement (tickets to increase turnover and economic value to the adjacent businesses), revenue (coins) collection, security and accounting. At $250 everyone gets a deal over full-cost accounting and pestiferous economist unbundling studies.


I'm guessing that this price is (A) After a certain hour (ie. 6 PM) and (B) a way of the city to subsidize the restaurant in order to keep its night life vibrant and therefore increase the revenues for the city through Hotel taxes and the like.


It certainly is not enough. A parking space at my school is $250 a year, and that isn't reserved, either