Lecture 7
Tuesday, September 25
Transportation
Film about the destruction of the L.A. trolley system:
Taken for a Ride
http://www.youtube.com/watch?v=ehoVnykvMKY
% of Urban Trips by type of transportation (1995)
Trends in Annual public transit ridership, 1900-2000
Annual Per Capital Gas Consumption, 2003
Annual liters
per person
1800
1600
1400
1200
1000
800
600
400
200
0
United
States
Canada
United
Kingdom
Germany Europe
France Central Middle East
America & N. Africa
South
America
Asia
Annual hours of delay per traveler due to traffic congestion
80
1982
Annual hours of delay per traveler
70
2005
60
50
40
30
20
10
0
Los
Angeles
San
Fransisco
Atlanta
Dallas
New York
Chicago
The LA Transportation Story
as told in
Who Framed Roger Rabbit?
http://www.youtube.com/watch?v=8DO5HzEWSkM&feature=related
(first 2 minutes)
http://www.youtube.com/watch?v=OUnWPcipi1w&feature=relmfu
(first 4 minutes)
The Public Transportation Free Riding Problem:
Busses vs. Cars
YOUR CHOICE
BUS
EVERYONE
ELSE’S
CHOICE
BUS
PRIVATE
CAR
PRIVATE
CAR
A
B
25 minutes 10 minutes
C
1.5 hours
Free-riding preferences: B > A > D > C
Free riding gain: 15 Minutes (A minus B)
“Sucker penalty”: 45 minutes (C minus D)
D
45 minutes
The Public Transportation Free Riding Problem:
Light Rail vs. Cars
YOUR CHOICE
RAIL
EVERYONE
ELSE’S
CHOICE
PRIVATE
CAR
RAIL
A
B
15 minutes 10 minutes
PRIVATE
CAR
C
D
25 minutes 45 minutes
Free riding gain: 5 Minutes (A minus B)
“Sucker penalty”: There is no sucker penalty!
What are the positive externalities of good
public transportation?
1. Quicker commuting times, less congestion
2. Saving on private car infrastructure (parking ramps, street
repairs, etc.)
3. Less pollution: less frequent house painting
4. Health benefits (asthma especially)
5. More efficient labor market, especially for poor (easier to get
to jobs), therefore less need for welfare
6. Less need for multiple cars in a family
7. Energy savings
Key Question: What is the true economic value of the positive
externalities of good public transportation?
Solutions
1. No free parking
2. Build infrastructure for transportation
alternatives: bike paths, rapid transit, etc.
3. Increase residential density within cities
4. The full cost of driving should be reflected in
gas taxes
5. Fully recognize the value of positive externalities in
the price of public transit tickets. (Implication:
perhaps tickets should be free).
Norway
Netherlands
Italy
Belgium
UK
Germany
Sweden
France
Korea
Austria
Price/gallon
Ireland
Tax/gallon
Spain
Switzerland
Japan
New Zealand
Australia
Canada
USA
0
1
2
3
4
U.S. $ per gallon
5
6
7
Solutions
1. No free parking
2. Build infrastructure for transportation
alternatives: bike paths, rapid transit, etc.
3. Increase residential density within cities
4. The full cost of driving should be reflected in
gas taxes
5. Fully recognize the value of positive externalities
in the price of public transit tickets. (Implication:
perhaps tickets should be free).
Positive externalities & ticket prices
1. Suppose: (a) the direct costs of a ride = $3, and (b) there
is some kind of negative externality = $1/ride
2. Then the true cost per ride = $4
3. To cover these costs, the ticket price should be $4, not $3.
4. Now suppose: (a) the direct costs of a ride = $3, and
(b) there is some kind of positive externality = $1/ride
5. Then the true cost per ride = $2
6. So, the ticket price should be only $2
7. But the transit company has spent $3 in direct costs to pay
for the ride.
8. Therefore the society has to somehow pay for the $1 of
value everyone receives to reimburse the transit company
for providing the ride.
Big Take-Home Message
from lecture on Transportation
For the free market to enable people to make efficient choices
two things must be true:
1. There are no significant externalities – positive or negative –
to your individual choice: what you chose does not affect
other people.
2. The full range of feasible alternatives from which to make
your choices can itself be provided by the market.
Transportation violates both of these principles:
People will make very different private choices depending
upon whether or not there exists a good, efficient, cheap
public transportation option, but the market itself can
never provide this even if it would be economically efficient
to do so.