Urban Tolls: Price and congestion -Some lessons for a better urban public policy- Seminar April 21th, 2015 Pierre KOPP.

Urban Tolls: Price and congestion-Some lessons for a better urban

public policy-

Seminar April 21th, 2015

Pierre KOPP

“A price is a solved political problem” Abba Lerner

1. Congestion and Toll

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1. Theory says (Vickrey) Congestion is an externality: you slow

me! A toll can reduce congestion The price has to be set up in order to

force individuals to internalize their external cost

The toll is optimal when it equalizes price and full cost that changes every single minute….

In practice: is Lerner right?

A

B

C

LG

H

E

Y X

J H

FP

H

Cost

Road use (q)

Marginal social cost S(q)

Marginal private cost I(q)

D(q)

Loss

Externality

Proceeds

Time gains

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2. The Stockholm toll

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1. The Stockholm experiment Stockholm urban area: 1.8 million

inhabitants Stockholm municipality: 800,000 inh.

Stockholm center: 350,000 inhabitants Toll in center imposed by central

government. Coalition: Green and Red To overcome local resistance:- All costs borne by the center

paid by Sweden- Experiment (Jan-July) followed by vote

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2. Systeme in place

Cordon toll: vehicles pay as they enter/exit the tolled zoneBetween 6.30 AM to 6.30 PMAt varying rate according to time

Modest fees: - 1.10 €, 1,7 €, 2.2 €, peak hours, off peak hours

- Maximum 6.60 € per day

- Entirely automated

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10

Per day(pass*km)

Private transportatio

n

Public transportation

Trips in Stockholm county 28,300 17,960

Average length (km) 13,5 13,6

Average time (min) 22 40

Average speed (km/h) 36.8 20.4

Centre/periphery 5,889 8,422

Average length (km) 17.2 15.4

Average time (min) 31 44

Average speed (km/h) 33,8 22,2

Centre/Centre288 758

Average length (km) 3.7 3.8

Average time (min) 16 2,4

Average speed (km/h) 13,9 9,5

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3. Widely described as an unmitigated success System functioned: engineers love it

Road traffic reduced- Registered reduction: 20%- Toll-induced reduction: 15%

Referendum positive: 53%: politician love it

There is a need for policy assessment It’s a job for an economist Maybe it will teaches us something

new about congestion’s theory

3. Costs and benefits

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The Net Social Benefit from a government policy is given by the difference between the cost and the benefit linked to the project (Boardman and al. 2001)

The Stockholm toll is socially beneficial if it increases the Net Social Benefit

Under most circumstances the changes in producer’s surplus, consumer surplus, externalities & government revenue provide a good measure of the monetary value of a government policy benefit and cost

1. Framework: Cost-Benefit analysis

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2. Welfare variation

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4. Calibration for Stockholm Speed (S) and Density (D): a linear

relation

No good speed measure A sample of 2,200 measurements Several points, for several days, for 48

periods of 15 minutes, for two directions Center: floating cars

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5. Calibration for Stockholm

Speed = cumulated flows /cumulated densities

Several points, for several days, for 48 periods of 15 minutes, and for two directions)

2005 : S = 49.48 km/h ; 2006 : S= 51.05 km/h.

2005 speed is generated by a road usage of q=410,000 trips,

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6. Time gain and loss

Before After

Number of trips 410,000 389,000

Speed radial 49,48 49,9

Speed center 22,9 23,8

Time gain (M€/year) 17,2

Loss for evicted (M €/year) -4

Benefit-Cost +13,2

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Benefit of CO2 reduction C02 reduction=∆ vehicles*fuel/km*C02/l.

- 60,000 trips/day- 17.2 km/trip- 0.1 liter/km)

- CO2/liter (2.35 kg)

=300 tons/day- Market price of CO2 (25 €/ton)

= 64 million Euros/year

7. Environmental gains: CO2 reduction

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Benefit of air pollution decrease (+7.36 M€) Number of vehicle*km per day* French

marginal value of 1 vehicles*km in dense urban areas

Accidents reduction (+1.7 M€) Toll increase speed and accidents decrease

road use and accidents Fatal accidents increase by 3%, severe

accident decrease by 2%

8. Air pollution decrease and accident

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Capital costs = 201 M€ Yearly costs = 56 M€

- +Amortization/8 years = 26,5 M€- +Opportunity cost 5% = 10,5 M €- +Marginal cost public funds 30% =10,5 M€- +Operation costs - -18,6 M€

9.Total implementation costs

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If there is a road shortage, an increase in PT is needed, or mobility will decrease

PT is costly (price=50% of the cost) The cost is conversely Subsidies=taxes=distorsion Quality decrease with the new crowd

10. Impact on Public transportation

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Time valueQuantity

Total cost T.C

Road

TC Road

Tolled road

TCValue of the time

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Value of the time

Quantity

Total cost T.C

Road

TC Road

Tolled road

G1 G2G0

T.C+

Better TC

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11. Impact on Public Transportation

Toll-induced increase in PT patronage: (+45.000) about 50% of evicted car users representing 5% increase in PT patronage

Either - a transport quality decrease cost (if

supply constant), - or increased supply cost (if quality

constant), or both —as in Stockholm

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12. Costs of increased public transport supply

Cost Amount

Investment costs 63.8 millions Euros

Yearly cost

Amortization (5 years) 11.7 millions Euros

Opportunity cost of capital (5%)

3.2 millions Euros

Marginal cost of public funds (30%)

3,5 millions Euros

Operation costs 37.5 millions Euros

Total cost/year -55.9 millions Euros

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13. Cost of increased congestion in PT Degradation: % of standing passengers: +1.3 % point

% of users satisfied: - 4 % points Difficult to value (promising research

area) Estimate based on … Stockholm PT

practices: standing time=2*seated time. 9,000 additional hours of standing time —> -18,5 M€

14. Impact on Public Finance Toll proceed : 87 M€ neither cost nor

benefit Toll and fuel taxes are less distorsive

than another taxes- MCPF on ∆ fuel taxes (30%)= +3,3 M€- MCPF on the proceed (30%)=-25,7 M€

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15. A Negative welfare change

Cost and benefit Amount

Gain and loss/congestion +13.2

Environmental gains +10.7

Cost of implementation -56

Gain and cost for TP -7

Cost of increased PT supply -56

Public finance +20

Total -74 M€

(M€=million €)

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Transactions costs are 5 time the value of the decrease in congestion

The cost of increasing PT supply=5 time decongestion gains

Toll is slightly beneficial for Stockholm. Congestion-related, environmental gains, time

gains for the new bus benefit Stockholm residents and enterprises, as well as the cost of increased PT congestion.

All of the other elements (except for the gain in CO2, which benefits mankind at large), are costs for the Swedish gov, and for all Swedish citizens

16. Lessons

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Three directions to reduce access to a service : Shortage, discrimination, prices Prices are our favorite Highest social value trips are selected User’s fees > taxes: less distortive

Is it regressive? Yes, if there is a correlation between low time

value and low income Yes, if center’s inhabitants do not pay the toll Yes, if poor suburbs’ inhabitants quit cars and

are left over with no good PT system

17. Distributive effects are complex

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Positive votation But a strange question : “Should it be

continued?” The logical question is “Do you

approve?” Simple econometrics leads to a negative

result

18. A contested political choice

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19. A contested political choice

Yes No Total %Yes

Municipality 239 212 451 53%

14 other 128 194 322 40%

Total 367 406

773 47%

4. Discussion

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Congestion costs are often said to represent 1% or more of GDP Congestion costs = net gains from

reducing congestion to optimal level: 4.8 M€

GDP of tolled zone = 22.9 Billion Euros/year

Congestion costs in most congested zone of Sweden: 0.02%

Estimates for Paris & London: 0.1%

1. Congestion is overestimated

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Optimality is a nice target Three conditions are requested for a

successful urban toll Severe road congestion

(London/Stockholm) Low implementation costs (S=L/3) Low marginal costs in public

transportation (Never)

2. Three conditions for a successful urban toll