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Congestion Relief via Pricing, Not the Pharmacy Aisle

Article Commentary - A Step Further...
There are three circumstances in transportation circles when the words congestion and pricing find themselves in close proximity.

The first in in regard to congestion pricing, this being the process by which drivers are either 1) charged a toll either at certain hours of the day in certain parts of the city or 2) charged a dynamically higher (or lower) price depending on actual conditions on the roadway.

In both cases the thinking is that the value of a stretch of road is not a fixed amount but changes with the circumstance. Congestion pricing has been used to good effect in certain cities overseas, and is now making (slow) inroads into various of our own cities.

The point is likely clear: the higher toll discourages traffic to overloaded regions, reduces to a small degree the wear and tear upon the underlying infrastructure, reduces the carbon footprint of the area (if traffic is indeed reduced) and gives the driver cause to consider that travel on the highway is never really free, nor should it be. These pricing mechanisms in the case of the dynamic pricing are complex, just as you would expect, but well agreed to by the contracting entity – a city or Agency of some sort – just as you also might expect.

The second occasion is the case of the non-fleet car sharing economy, Uber, Lyft and the like. These fine people have established higher prices at times of heavy demand or congestion, for instance as the fans from a basketball arena are just now spilling onto the streets in their thousands, all looking for rides. No one can say that it is universally popular to find yourself charged more because there is a higher demand for the service you seek to buy, but if this isn’t the law of supply and demand in action I don’t know what is, and the practice is generally well tolerated.

The third instance is in the case of the many fine discussions regarding the cost of congestion, a cost perhaps due to forgone maintenance of the stretch of highway, perhaps due to a lack of highway or transit options, perhaps due to delays in funding that inhibit matching our old friends supply and demand.

The calculations in this latter case is rather an easy one to make, and reveals itself to common sense. A calculation is made timing the passage of a passenger vehicle or truck along a stretch under ordinary throughput conditions, and passage along that same stretch under various levels of congested conditions. The difference in these two times, which can be significant as any rush hour commuter can attest – is then applied to the gasoline consumed, the carbon output released, the additional labor costs applied to the movement of goods in the case of commercial drivers, and some calculation placing a ‘wage’ upon the time spent in traffic for each person who, while stalled in traffic, is likely not earning money at the moment and everything else being equal, wishes that he or she were. Congestion begets congestion further upstream and so there is an accelerating cumulative effect.

An interesting new cost associated with infrastructure disrepair is to estimate the cost of the damage to vehicles linked to potholes, poor drainage, fender benders and the like. This brings the cost home in a very personal way, and has been found to be a compelling argument.

These congestion costs are measured across the infrastructure modes and reflect a mix of capacity constraint, supply, and demand. Suffice to say that when demand goes up but supply is inhibited by capacity constraint, costs too are going to go up.

Over in the power generation and transmission industry much the same calculation is made, locational price analysis as it is called, which seeks to determine the difference in price between ordinary times and high demand times. In those high demand cases the power must be imported from another region or grid at much higher cost (it being a spot cost not a contracted cost) when the regional capacity isn’t adequate. It is a measure much followed by national regulators in order to understand how close to full capacity the system is operating. The similarities between the two sectors are there for the taking and perhaps help to bring home the cost of congestion in a concrete way. – lsm
News in Motion is an e-newsletter keeping you current on news and trends in the transportation industry.