Love it and thank you - I think it's important to keep the sanity of not throwing all the models we've studied for years just because (they are not perfect, they need to get better).
"The result is exactly what the model predicts: the marginal trips were pruned away, freeing up road space for those who value it more, and overall congestion eased."
This is sometimes so needed to be remember by some actors in the political sphere, both sides. Now, I remember how many people are complaining about the CO2 emissions market in Europe, from the green-left because apparently its capitalism and it's wrong. While, this is creating a spur in innovation that will be needed. See for example carbon capture technologies that just work as a mechanism to avoid the potential CO2 high prices.
Great article Brian. Small quibble - in your example of congestion pricing, you say that increasing the price shifts the demand curve to the left. But if the only thing that is changing from the perspective of the consumer is the price, then in the Econ 101 framework wouldn't this be represented more by a movement up the demand curve than a shift? Although, in a funny way it seems like one could actualy argue that in the long run the demand curve might shift to the RIGHT rather than the left, since unlike individual consumption goods where the nature/experience of the is typically unaltered by the amount of people who consume it, the experience of driving is improved when there are fewer people on the road due to the increase in prices.
So, without having read the literature on this (sorry), would a fair summary be: price increases -> people respond according to their existing demand curves and less people choose to drive now that the price is higher. This improves the experience when one does drive -> demand shifts to the right, as more people will be more willing to pay to drive since it is now better. It would then just be a question of elasticities as to how much this reduces congestion.
You’re right. That’s a clearer way to think about it. I was thinking of a normal sales tax. There are a few ways to show a sales tax but one is as a shift of the demand curve (or the supply curve). If a sales tax is paid by the seller, then the price on the axis is the price going to the seller, so the demand curve shifts in. In this case, that really doesn’t make sense, since the time cost before the congestion price doesn’t really go to a seller.
When I was an economist working for the U.K. government I rarely had to venture beyond supply and demand and opportunity cost when offering policy advice.
Love it and thank you - I think it's important to keep the sanity of not throwing all the models we've studied for years just because (they are not perfect, they need to get better).
"The result is exactly what the model predicts: the marginal trips were pruned away, freeing up road space for those who value it more, and overall congestion eased."
This is sometimes so needed to be remember by some actors in the political sphere, both sides. Now, I remember how many people are complaining about the CO2 emissions market in Europe, from the green-left because apparently its capitalism and it's wrong. While, this is creating a spur in innovation that will be needed. See for example carbon capture technologies that just work as a mechanism to avoid the potential CO2 high prices.
Great article Brian. Small quibble - in your example of congestion pricing, you say that increasing the price shifts the demand curve to the left. But if the only thing that is changing from the perspective of the consumer is the price, then in the Econ 101 framework wouldn't this be represented more by a movement up the demand curve than a shift? Although, in a funny way it seems like one could actualy argue that in the long run the demand curve might shift to the RIGHT rather than the left, since unlike individual consumption goods where the nature/experience of the is typically unaltered by the amount of people who consume it, the experience of driving is improved when there are fewer people on the road due to the increase in prices.
So, without having read the literature on this (sorry), would a fair summary be: price increases -> people respond according to their existing demand curves and less people choose to drive now that the price is higher. This improves the experience when one does drive -> demand shifts to the right, as more people will be more willing to pay to drive since it is now better. It would then just be a question of elasticities as to how much this reduces congestion.
You’re right. That’s a clearer way to think about it. I was thinking of a normal sales tax. There are a few ways to show a sales tax but one is as a shift of the demand curve (or the supply curve). If a sales tax is paid by the seller, then the price on the axis is the price going to the seller, so the demand curve shifts in. In this case, that really doesn’t make sense, since the time cost before the congestion price doesn’t really go to a seller.
"based on IV estimates" Intravenous estimates?
Yes, economics is MUCH simpler than most people realize. We ARE all economists. Every day.
IV = "instrumental variables", presumably.
Thanks, m_r.
When I was an economist working for the U.K. government I rarely had to venture beyond supply and demand and opportunity cost when offering policy advice.
Excellent 👌