Monday, June 06, 2005

Traffic Shaping, Literally

(Via Ananthan) The BBC is reporting on an ambitious British government plan to track all vehicles via a black box, and charge them for road usage based on when and how long they drive. Rush-hour travel on congested roads would be charged premium prices while rides on barely used country roads would come really cheap. While the charging of differential prices to shape traffic is a pretty common idea (think telephone networks), it seems a little strange -- to say the least -- to apply it to the government's road network.

First of all, this vehicle toll is supposed to replace the fuel tax, which had been a major driver in encouraging the use of fuel-efficient cars. (The fuel tax effectively internalized the social cost of pollution.) Second, it is not clear to me that the economic goals of road networks are the same as that of private telephone nets. Telcos aim to maximize profit and would therefore like to charge a premium for daytime minutes, which are in much greater demand than night minutes.

Governments, on the other hand, aren't laying roads for profit. If the aim of the tax is to generate revenue for road maintenance, it makes little sense to charge by congestion. In fact, you could argue that the cost of maintenance is amortized by the number of vehicles that use it -- therefore, the more congested a road is, the less people ought to pay. (This is assuming road quality declines as a linear function of usage and monotonically with time; while more use does make the road worse, seasonal rains also have a big impact, due to which the road maintenance cost still declines with congestion.)

Which leads us to the theory/fact that the tax is aimed simply at reducing congestion. While this purpose would probably be served, I wonder why it's important to reduce congestion. Those people who don't like congestion should simply stop driving! (I'm assuming they know beforehand how nasty it's going to be on the road.) All the tax does is to give preferential access to the rich instead of to those bravest in defying traffic.


Anonymous Anand said...

I would propose tax slabs with taxation rates based on income. And to clarify this for some, this means lower taxes for lower incomes.

6/06/2005 11:27 PM  
Blogger Prasanna said...

anand said...(but originally in the wrong post):

This does sound like it would end up being regressive taxation. Assuming that there is not a substantial difference in the amount of driving that the rich and the poor do, the poor end up spending a greater fraction of their income for the purpose of driving. This sounds like one of those low political fallout plans - the rich will like it, and the poor will have no clue what hit them.

6/10/2005 8:17 PM  
Blogger grenade said...

Instead of tracking all vehicles, wouldn't it be a pretty good approximation to collect this money like a tax on petrol? The more you travel the more petrol you burn. The more you travel on congested routes the more petrol you burn. And gas guzzlers usually cause more wear to the road too.

6/11/2005 4:25 PM  

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