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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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