19 Comments

Thanks for your detailed analysis! Don’t forget to include the time saved by drivers and riders. I got from my office to EWR during rush hour yesterday in 32min and my Uber cost less because it required less driver time. Also, my coworkers who live in New Jersey report their bus commute to Port Authority has been 15-30min shorter than before the holiday. Since time spent increases exponentially as you pass the natural carrying capacity of the tunnels and bridges, raising pricing to keep usage just below capacity is a huge benefit to everyone.

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Sorry, I should have been more explicit. The externality is adding time (and risk). Reducing the externality is saving you time.

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I think these are all fair considerations, but at some point it becomes extremely complicated to actually assess the impact of such a policy on all these factors at once, risking failure in light of special interests politicking.

Consider if we had to account for (according to multiple different models as to the estimating decrease in traffic) the actual expected decrease in parking revenues, the increase in cost for Taxi/Rideshare, the increase in public transportation crowding (a difficult to measure but definitely real cost), increase in traffic in other areas (a lawsuit alleging this from somewhere near the GW bridge was threatening to hold up the new congestion pricing), the actual welfare improvement of where the tax revenue is being spent and the predicted transaction costs. Not only would such a model have multiple feedback mechanisms (lower parking lot revenues means lower taxes for example), each individual prediction would be incredibly difficult to justify. The result would be a political football that endlessly gets passed around in a circle.

Sometimes it's easier just to make basic assumptions based on the knowledge that a negative externality is not currently being accounted for; Transaction costs are whatever the lowest bidder quoted us to build and operate the tracking system, tax revenue is being spent as well as all other NYC tax revenue, and ignore the rest of the concerns if it isn't particularly obvious the cost will be high.

I think unless the pricing is especially high, the only way to actually know the effect will be having case studies like Singapore and see how the areas of the economy that would be effected are doing. My intuition tells me that $9 is safely in the welfare-increasing range, and this could be increased until the choke-points in and out of Manhattan are being used to their designed speed and capacity, which is perhaps much higher than $9.

An ideal might be a sort of dynamic congestion pricing that used historical data to estimate exactly when there would be the most traffic for what parts of Manhattan, and charged a variable fee (that was communicated to drivers in an impossible to miss and explicit way) based on the expected traffic. Using the Lincoln Tunnel might cost $50 at 5:00 on a Friday afternoon, and $0.05 at 4:00 AM on Christmas Eve, depending on that congestion.

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I think that's all fair. I would like to see more dynamic pricing but I don't know the costs of implementing this. But we see it on tolls around here.

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There was a decently long article in the NYT about how economists are losing credibility. Reading this article helps me understand why.

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Fair. Great comment :)

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Let me add a substantive comment. You assert that the lawyer will lose billable hours by being forced to take public transit rather than driving into the city.

I would suggest that they would GAIN billable hours. Because if you think the lawyer wouldn’t bill time spent reading a brief on the subway, you’re nuts.

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Why not just look at congestion pricing as the price for driving during certain hours? I do understand what your points are but isn’t this just economics managing a scarce resource?

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Sure. But is the price better than a price of zero? I come down saying yes but want us to think carefully, since not every price is better than zero.

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As a practical matter, if you set any market price to zero, no products will be produced.

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This is a great post about NYC's congestion pricing program and I now assign it to my students in undergraduate public finance. It really follows the way we should think about externalities and policies designed to correct them: the effect on welfare, partial equilibrium effects, general equilibrium effects, short and long-run effects, and the effect from spending revenue. I'll also try to get the students to think about how rent-seeking could lead to exemptions to the price in the future. Thanks for the great work.

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Really appreciate your thoughts on this. Fundamentally, it makes complete sense to price congestion. As more metros likely attempt this with varying approaches, it’ll be interesting to see how the approach changes based on learnings. I’m gonna guess a much more flexible approach (variable pricing) will take hold if the costs of implementation aren’t too steep.

Here in Boise ID, it might be considered laughable that our region would ever implement such a program, but we have almost no public transit, a booming economy and booming growth and worsening traffic. If we get in front of the problem, maybe we’d be better off in the long run. Who knows, but politically it’s light years away.

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"Yes, driving generates an externality, but a wasteful tax also has an externality." What externality does a wasteful tax generate?

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Collect X dollars. Spend those X dollars dig holes that you fill in. That's wasteful. I shouldn't have called it an externality but it's a dead weight loss. The harder questions are about the $50 million projects for a new bathroom. How much is transfer vs. actual waste?

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Totally on board with calling it a dead weight loss, I was just confused by the reference to externalities. Thank you!

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Thanks. I fixed it.

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"Assume away absent transaction costs"? Ok, OK!

Otherwise, tracing actual expenditures funded by (any particular) revenue stream is the Devil's own challenge even in the best of circumstances. Might be an Analysis Too Far. It's fungible, y'know?

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Sara and Jane are the main beneficiaries of the tax.

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Good read!

Recalling the aimed benefits:

- Less traffic

- More public transport usage, and funding

- Good for the NYC economy at large

and continuing off of you're section "however, in simple policy debates this... often gets lost,"

I have a few questions!

How, if the tax is deterring usage seemingly by as much as 50%, can it scale to appropriately be enough funding for other projects? How is forcing the usage of lower utility alternatives unto the elastic part of demand, anything but wasteful? At large, will this not just widen the income disparity (ie I've heard arguments for it saying only those who have a high enough net economic benefit will pay for it, but at large that would still make everyone worse off)? You mention the at large effects of the macro, specifically on rent, but I'm more asking how does it square with the intention of actually solving the perceived issues.

IMO: I have a sneaking suspicion that it's a bit of a stretch to argue these issues can alone be solved with one additional tax, in one of the most tax burdened areas on the planet.

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