class: center, middle, inverse, title-slide # Econ 330: Urban Economics ## Lecture 15 ### John Morehouse ### May 17th --- class: inverse, center, middle # Lecture XV: Highways Pt 1 --- name: schedule # Schedule ## Today -- 1) .hi.purple[US Auto Use] 2) .hi.purple[Externalities] 3) .hi.purple[Congestion Pricing] -- -- ## Upcoming - .hi.slate[HWIII due May 23rd] - .hi.slate[Book Report Due May 30th] -- --- # Vehicle Miles Traveled <img src="figures/fred.png" width="90%" height="58%" style="display: block; margin: auto;" /> --- # US: People like Cars <img src="figures/world_cars.png" width="90%" height="58%" style="display: block; margin: auto;" /> --- # Carbon Emissions <img src="figures/percap_emis.png" width="90%" height="58%" style="display: block; margin: auto;" /> --- # Carbon Emissions <img src="figures/tot_emis.png" width="90%" height="58%" style="display: block; margin: auto;" /> --- # A Question __Important Policy Questions__: - How do we reduce `\(CO_2\)` per capita emissions in the US? --- count: false # A Question __Important Policy Questions__: - How do we reduce `\(CO_2\)` per capita emissions in the US? - What happens if per capita `\(CO_2\)` emissions in China skyrocket? --- count: false # A Question __Important Policy Questions__: - How do we reduce `\(CO_2\)` per capita emissions in the US? - What happens if per capita `\(CO_2\)` emissions in China skyrocket? Future of global carbon emissions depends heavily on how car ownership rates evolve in China and other emerging economies --- class: inverse, middle # Checklist .col-left[ 1) .hi[US Auto Use] ✅ 2) .hi.purple[Externalities] ] .col-right[ 3) .hi.purple[Congestion Pricing] ] --- # Externalities Question: - Are the costs of driving entirely internalized by the driver? -- Answer: No! - __Axiom 3__: Externalities cause inefficiency -- --- #Externalities What are some externalities from driving? --- count: false #Externalities What are some externalities from driving? 1. Congestion --- count: false #Externalities What are some externalities from driving? 1. Congestion 2. Environmental Damage --- count: false #Externalities What are some externalities from driving? 1. Congestion 2. Environmental Damage 3. Collisions --- count: false #Externalities What are some externalities from driving? 1. Congestion 2. Environmental Damage 3. Collisions 4. Blight (parking lots instead of parks) --- count: false #Externalities What are some externalities from driving? 1. Congestion 2. Environmental Damage 3. Collisions 4. Blight (parking lots instead of parks) 5. Noise Pollution -- .hi.slate[Today:] we will focus on congestion externalities -- --- #Externalities How costly is .pink[congestion]? --- count: false #Externalities How costly is .pink[congestion]? - Typical commuter spends .hi[47 hours per year] in traffic --- count: false #Externalities How costly is .pink[congestion]? - Typical commuter spends .hi[47 hours per year] in traffic - __Very high__ in some metro areas (LA: 93, SF: 72, Atlanta: 67) --- count: false #Externalities How costly is .pink[congestion]? - Typical commuter spends .hi[47 hours per year] in traffic - __Very high__ in some metro areas (LA: 93, SF: 72, Atlanta: 67) - Estimated gasoline cost due to congestion delays: .hi[5 billion per year] --- count: false #Externalities How costly is .pink[congestion]? - Typical commuter spends .hi[47 hours per year] in traffic - __Very high__ in some metro areas (LA: 93, SF: 72, Atlanta: 67) - Estimated gasoline cost due to congestion delays: .hi[5 billion per year] - Time + Gas cost estimate: .hi[63 billion per year] --- # Modeling Externalities Let's start by assuming the only externality from driving is congestion --- count: false # Modeling Externalities Let's start by assuming the only externality from driving is congestion - .hi[Marginal Social Cost] (MSC): Added cost to _society_ from one extra unit of production - __Note__: `\(MSC \neq MC\)` --- count: false # Modeling Externalities Let's start by assuming the only externality from driving is congestion - .hi[Marginal Social Cost] (MSC): Added cost to _society_ from one extra unit of production - __Note__: `\(MSC \neq MC\)` - MSC is the marginal cost (private) plus the marginal external cost (social) --- count: false # Modeling Externalities Let's start by assuming the only externality from driving is congestion - .hi[Marginal Social Cost] (MSC): Added cost to _society_ from one extra unit of production - __Note__: `\(MSC \neq MC\)` - MSC is the marginal cost (private) plus the marginal external cost (social) --- count: false # Modeling Externalities Let's start by assuming the only externality from driving is congestion - .hi[Marginal Social Cost] (MSC): Added cost to _society_ from one extra unit of production - __Note__: `\(MSC \neq MC\)` - MSC is the marginal cost (private) plus the marginal external cost (social) --- # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where --- count: false # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where - `\(m\)` is the additional time in traffic from an extra vehicle on the road --- count: false # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where - `\(m\)` is the additional time in traffic from an extra vehicle on the road - `\(v\)` is the number of other road users --- count: false # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where - `\(m\)` is the additional time in traffic from an extra vehicle on the road - `\(v\)` is the number of other road users - `\(c\)` is the oppurtunity cost of time --- count: false # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where - `\(m\)` is the additional time in traffic from an extra vehicle on the road - `\(v\)` is the number of other road users - `\(c\)` is the oppurtunity cost of time __Note__: When there are few cares on the road, `\(m\)` and `\(v\)` are relatively small --- count: false # Congestion Externalities - MEC from congestion = `\(m\cdot v\cdot c\)` where - `\(m\)` is the additional time in traffic from an extra vehicle on the road - `\(v\)` is the number of other road users - `\(c\)` is the oppurtunity cost of time __Note__: When there are few cares on the road, `\(m\)` and `\(v\)` are relatively small - As the number of cars increases, MEC increases (it is nonlinear) - Also: the above formula makes a strong assumption, what is it? --- # Another Graph --- class: inverse, middle # Checklist .col-left[ 1) .hi[US Auto Use] ✅ 2) .hi[Externalities] ✅ ] .col-right[ 3) .hi.purple[Congestion Pricing] ] --- # So what? Okay, congestion is an issue, how do we fix it? -- .hi[Popular Answer:] Build more roads - Thought: if we build more roads, then congestion will decrease since there will be more space on the road -- - .qa[Q]: What is the _crucial_ assumption we make when stating: "building roads will reduce congestion" -- - .qa[A]: The number of drivers will remain the same before and after the road is built -- --- # LA Traffic <img src="figures/la_traffic.jpg" width="90%" height="58%" style="display: block; margin: auto;" /> --- # A Predictable Response More people driving when a new road is built is easy to understand --- count: false # A Predictable Response More people driving when a new road is built is easy to understand 1. People avoid driving because it is costly --- count: false # A Predictable Response More people driving when a new road is built is easy to understand 1. People avoid driving because it is costly 2. Building a new road makes it less costly --- count: false # A Predictable Response More people driving when a new road is built is easy to understand 1. People avoid driving because it is costly 2. Building a new road makes it less costly 3. Some people were _on the margin_ of driving, and the new road pushes them over --- # So what? Roads: Not a great solution. Better idea? --- count: false # So what? Roads: Not a great solution. Better idea? ## .pink[Pigouvian Taxes:] --- count: false # So what? Roads: Not a great solution. Better idea? ## .pink[Pigouvian Taxes:] - __Main insight__: social cost of driving exceeds private --- count: false # So what? Roads: Not a great solution. Better idea? ## .pink[Pigouvian Taxes:] - __Main insight__: social cost of driving exceeds private - Inidividuals do not bear full cost of action, so they engage in it too often --- count: false # So what? Roads: Not a great solution. Better idea? ## .pink[Pigouvian Taxes:] - __Main insight__: social cost of driving exceeds private - Inidividuals do not bear full cost of action, so they engage in it too often - Raise individual price until social cost = private cost `\(\implies\)` people drive less - Done via a tax (in this case: congestion) --- # Where is it? <img src="figures/london_pricing.jpg" width="90%" height="58%" style="display: block; margin: auto;" /> --- # Where is it? <img src="figures/singapore_pricing.jpg" width="90%" height="58%" style="display: block; margin: auto;" /> --- # What Happened ? <img src="figures/london_cars.png" width="80%" height="80%" style="display: block; margin: auto;" /> --- # Model with Pigouvian Taxes --- # Peak vs. Off Period Taxes --- # Mechanisms Model demonstrated congestion taxes reduce traffic volume. How? --- count: false # Mechanisms Model demonstrated congestion taxes reduce traffic volume. How? 1. Modal substition: switch to carpool, public transit --- count: false # Mechanisms Model demonstrated congestion taxes reduce traffic volume. How? 1. Modal substition: switch to carpool, public transit 2. Switch to off-peak travel --- count: false # Mechanisms Model demonstrated congestion taxes reduce traffic volume. How? 1. Modal substition: switch to carpool, public transit 2. Switch to off-peak travel 3. Switch route --- count: false # Mechanisms Model demonstrated congestion taxes reduce traffic volume. How? 1. Modal substition: switch to carpool, public transit 2. Switch to off-peak travel 3. Switch route 4. Location decisions: change residence or workplace, cutting travel distance --- # Discussion Congestion taxes sound like a good idea, right? What are the problems? .hi.purple[Discuss] -- - Roads aren't always congested. So tax needs to be time-varying. Gets very complicated - Are all autos charged the same amount (semis and prius?) -- --- class: inverse, middle # Checklist .col-left[ 1) .hi[US Auto Use] ✅ 2) .hi[Externalities] ✅ ] .col-right[ 3) .hi[Congestion Pricing] ✅ ] --- exclude: true