Dynamic Tolling: Good for Most

By Jane Silfen

Variable toll pricing is used to regulate demand and, therefore, capture the value of motorists’ time savings.[1] Dynamic toll pricing is popular in Europe and limited U.S. evidence seems positive. However, faced with environmental, budgetary, and socioeconomic challenges, how should transportation authorities consider the benefits and complications of variable pricing?

Dynamic tolling does seem effective in reducing congestion and capturing perceived time savings.  A study of SR-91 in California concluded that most drivers use the express lane some, but not all, of the time dependent largely on the hour-by-hour price differentiation. The study also found that drivers overestimated—and thus were willing to overpay for—the amount of time they saved.[2] Increased interested in managed lanes is evident from Texas to Colorado to Virginia, among others, suggesting perceived environmental benefits from reduced emissions and economic benefits from reduced congestion and incremental revenues.

This narrative makes sense in theory, but I would add a practical concern about the economics of variable pricing. It seems harder to forecast, particularly for greenfield projects. Toll authorities (and potential investors) must speculate on both demand for a route and willingness to pay for that route. Amid tight public budgets and spooked markets, does variable pricing provide net incremental value or risk?

Equity is also a matter of theory versus practice. Dynamic tolling is theoretically fair. Those who ascribe a higher value to their time should use express lanes more frequently and at a higher cost. This argument seems to hold up with both motorists and the public, with the U.S. Department of Transportation concluding that, “the perception that congestion pricing is an inequitable way of responding to the problem of traffic congestion does not appear to be borne out.”[3] Practically, though, this means that rich people—whose time is worth more because they make more—take the express lanes, almost always, and poor people—whose time is worth less because they make less—take the free lanes, mostly. Might this give rich people more time to make more money, and poor people less time to make more money? In  a country marked by widening income dispersion, is good transportation policy good public policy?

On balance variable tolling seems good for most: drivers have more choice, roads make more money, air and noise pollution from congestion goes down. However, there are some additional questions that toll authorities should consider before continuing the rollout of managed lanes across the U.S.


[1] “Managed Lanes: A Cross-Cutting Study,” U.S. Department of Transportation, Federal Highway Administration Office of Operations, November 16, 2006 accessed via http://ops.fhwa.dot.gov/freewaymgmt/publications/managed_lanes/crosscuttingstudy/chapter3.htm on February 10, 2013

 

[2] “Continuation Study to Evaluate the Impacts of the SR 91 Value-Priced Express Lanes Final Report,” U.S. Department of Transportation, Federal Highway Administration Tolling and Pricing Program, April 20, 2011, accessed via http://ops.fhwa.dot.gov/tolling_pricing/value_pricing/pubs_reports/projectreports/sr91_expresslanes.htm on February 10, 2013

[3] “Income-Based Equity Impacts on Congestion Pricing – A Primer,” Federal Highway Administration Tolling and Pricing Program, May 8, 2009, accessed via http://ops.fhwa.dot.gov/publications/fhwahop08040/cp_prim5_04.htm on February 10, 2013

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3 thoughts on “Dynamic Tolling: Good for Most

  1. By
    By Lynsey He

    I agree with Jane that Dynamic tolling does capture time value for some motorists and reduce congestion to a limited extend. I would like to supplement the narrative with some other concerns.

    Jane stated that “toll authorities (and potential investors) must speculate on both demand for a route and willingness to pay for that route.” I would argue that such speculation should primarily work for price sensitive commuters. During rush hour when people are less sensitive to price, dynamic tolling would have limited effect in solving congestion. In fact, people tend to accredit higher value to time when there is congestion, especially in a country marked my narrow income dispersion.

    Another concern is associated with public transportation. Assume dynamic tolling works, those could not afford express lanes would have to choose free lanes. This could possibly result in usage imbalances among the lanes and subsequently lead to more congestion for the free lanes. Therefore it is possible that some motorists might switch to public transportation. Would the existing public transportation system withstand sudden incremental usage? If not, how much would it cost to strengthen?

    Therefore, the question comes down to: would dynamic tolling add value that offsets the side effects it brings about?

  2. Jane,

    Thanks for starting this discussion.

    I see two primary purposes for tolls in the first place: 1) to cover the price of building and maintaining the specific road; and 2) to ‘manage’ use. Revenues from the first would be most appropriately tied to some measure of distance traveled and perhaps weight of vehicle while revenues from the second can be put to some other purpose.

    Taken together, these models suggest that managed lanes can in fact contribute to redistribution. Since all roads (managed or ‘public’) cost money to build, in theory all roads should have some floor level charge per use. A program in Oregon is attempting to apply this reasoning by assessing a monthly fee based on distance traveled for cars on all roads in the city.1 Car owners use the roads more than bike owners or public transit users, so arguably it is appropriate that they then have to pay more to maintain the roads.2

    Dynamic pricing of managed lanes could then be implemented on top of this floor. The additional fees collected from the wealthy motorists using the express lanes could be used exclusively to subsidize the public road system, thus helping to lower the ‘tolls’ on those roads for all other users.

    Brett

    1.The website for Oregon’s Road User Fee Pilot Program: http://www.oregon.gov/ODOT/HWY/RUFPP/Pages/index.aspx. The US Federal Highway administration also provides information about Vehicle-Miles Traveled (VMT) Fees: http://www.fhwa.dot.gov/ipd/revenue/road_pricing/defined/vmt.htm.
    2. Even individuals without cars would help pay for the roads indirectly, either through adjustments in fares on public transit as buses have to pay the road fees or higher prices on local consumer goods as stores pass on the fees charged to delivery trucks, etc.

  3. Jane, great post! There are many questions around efficacy and equity of variable toll pricing. I believe it helps to view this policy as one of many levers in a multidiscipline approach aimed at reducing congestion, lessening environmental impact, and funding future infrastructure projects. As many others pointed out in their posts, people are often unwilling to change in the near term for potential long term benefit down the road. I do not see the drivers of Southern California giving up their cars anytime soon to live in the 200+ story Sky City, so highways and toll roads are a necessary evil.
    Other levers such as technology, personal and business incentives, and data analytics can be used in conjunction variable pricing to improve transportation policy. Electronic payment and transponders have eliminated the need for toll booths, alleviating the congestion and dangerous traffic conditions around toll booths, which makes dynamic pricing feasible. SR-91 is free when carpooling with 3+ passengers, which provides an opportunity for those that do not want to pay or cannot afford the hefty toll to enjoy the time savings. Dynamic pricing is also an incentive for businesses to move their goods during off peak traffic times to save costs and offer workers flexible work schedules allowing them to travel during non-peak hours. Finally, the data from dynamic pricing and usage level that are easily tracked with today’s technology allows PPPs to better forecast demand and price elasticity. This can be analyzed in fine grain detail, like how rain affects traffic patterns and willingness to pay.
    Your point about how this system is more beneficial for the wealthy is spot on, but this same phenomenon is present in many aspects of our lives including education, sports, and business. One positive externality is that these wealthy drivers are funding future development that will hopefully include utilitarian projects such as carpool lanes which benefit everyone and have arguably no bias towards the wealthy.

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