Pricing Road Space
There is reason to believe that reductions in traffic congestion would be relatively easy to attain. Small changes in the number of cars using a particular roadway at a given time can result in large improvements in the flow of traffic. For instance, the addition of just a few school buses makes traffic flow noticeably worse on the first day of school, while traffic flow is noticeably better on some State holidays when only a small number of residents stay home from work.
Congestion pricing dampens demand for roads during peak hours and spreads usage over a longer time period. Differentiating the price of a good by the time of day effectively allocates limited space during periods of higher demand. This approach is used by many providers of goods and services: movie theaters charge more in the evening than they do midday; ski runs charge more during weekends than they do on weekdays; airlines raise prices on tickets during peak seasons; taxi cabs charge more during rush hour; and railroads often charge lower prices for offpeak traveling.
In addition to improved allocation of road space, charging a fee also provides urban planners with useful information about when and where to invest in the expansion of existing road capacity. Expansion should be focused on roads where drivers demonstrate a willingness to pay that is higher than the costs of construction. Revenues from roadway pricing may also prove a viable alternative to taxes as a way to fund the building of new roads in urban areas. As is the case in other markets, those who use the roadway would pay for its maintenance and expansion.
In general, there are two ways to price road space to address congestion: cordon pricing and roadway pricing. Cordon pricing charges a toll to vehicles for access to a congested area regardless of which roads in the area are used. It is typically in effect during the work week and varies by time of day. Cordon pricing has been implemented in a number of cities including London, Stockholm, and Singapore. While cordon pricing has been considered for several cities in the United States, it has not yet been implemented here. It is likely to be less effective in cities that are less dense, do not have adequate public transportation systems, and have multiple areas of centralized economic activity (such as Phoenix or Los Angeles).
Evidence suggests that cordon pricing fees have been effective in reducing congestion where they have been tried. After the first year that cordon pricing was imposed in London, for instance, congestion fell by 30 percent, average vehicle speed increased by 20 percent, and bus travel became more reliable. One important mechanism for reducing congestion appears to be the ability to substitute some form of public transportation for driving.
Roadway pricing aims to limit congestion on certain routes by charging variable fees (tolls) to access a particular lane or road, regardless of the final destination. Ideally, road tolls should be responsive to the actual level of congestion at each moment. By increasing the fee during periods of high demand and reducing it during periods of low demand, the variable tolls reduce congestion by encouraging offpeak driving and the use of alternative routes.