Wednesday, December 19, 2007

Congestion Charge, the London Experience

Now that it seems Mayor Bloomberg is getting really serious with the Manhattan congestion charge, to be about US$8 for every incoming vehicle, it is opportune to assess the London experiment. The following lines are largely based on a piece by Jonathan Leape, published in the Journal of Economic Perspectives, a peer-refereed publication of the American Economic Association, unfortunately not available online for recent publication years.

The premise in London was a desperate situation with an inescapable gridlock in the central district: day-time average speed was 14.3 km/h compared to 32 km/h at night, public transportation and congestion were viewed by Londoners as more important problems than crime. Charging for entering Central London had been discussed for a long time but was thought impossible to implement. The 2000 election of Ken Livingstone to Mayor changed this. Within three years, an impressive system of cameras that recognize license plates was in place and a £5 daily charge was implemented in February 2003, increased to £8 in July 2005. Within a year, day-time average speed increased to 16.7 km/h, the traffic of cars decreased by 34%, trucks 7% and vans 5%, however, taxi traffic went up 22%, and 6% for motorcycles. Other measured of congestion also showed significant relief.

In view of this success, and the welcome net revenue it brings to London, many other cities in Europe as well as New York City are considering a similar congestion charge. One should keep in mind, however, that not everything is rosy in London, though. Circumstantial evidence shows that traffic has increased close to the tariffed zone, presumably from cars driving around it or looking for parking. Also, it appears that cars that have bought a daily pass tend to take more advantage of it than before. Finally, an increasing number of vehicles that are exempt from the charge undermines its impact.

Again and again, it has been shown that congestion cannot be solved by building roads, as the latter just encourage more cars to use them. Besides, this was not an option in London. But incentives can work, making people pay makes them take notice. The availability of a good public transportation system is a requirement, to serve as an alternative to private transportation, and the ability of having a well-defined tariff area is a plus. All criteria apply to London, except maybe the tariff area: it is well-defined by a ring road, but the neighborhoods just outside clearly suffered.

In the case of New York City, the congestion charge has all but one reason to work well: Manhattan is very well serviced by public transportation, it is a well-delimited island that should not lead to a negative externality on neighboring boroughs and towns. But will car drivers take notice? I am not sure about this, considering the number of them who are willing to spend that much time caught in traffic every day while public transportation is available. At the going wage in Manhattan, the opportunity cost of their lost time is much higher than $8, and they seem to think sitting in gridlock is worth it. And looking at their car, $8 a day will not hurt them. But even if it does not reduce congestion, it will bring revenue from the city from those using Manhattan but living outside.

And I do not want to hear about those that do not live close to public transportation and need to work in Manhattan. They chose to live where they live. It is less expensive there for a reason. Take housing closer to rail/metro/bus/boat/work, sell the car, and they will be better off despite higher rent or house costs.

Update (January 24, 2008): This post has been translated to Italian on InterBlog.


Anonymous said...

The article by Jonathan Leape is available online, if you are subscribed or are willing to pay, here.

Anonymous said...

So you seem to be saying that the congestion charge is a win-win situation: either it truly reduces congestion, or it fails but is still a revenue stream for the city. Let me describe in a different way: it is a cash grab by the city that have an impact on congestion. Are you still feeling so good about it?

John Fast said...

I think the proposed congestion charge is far too low; I'd like to see it around $25 to $30 per day. But I'd also like to use it to reduce other taxes (preferably by using the revenue to finance public transportation) and/or to provide a demogrant of about $200 per person per year to every man, woman, and child living in Manhattan! And that would probably spur the other boroughs to institute similar charges of their own.

Anonymous said...

London needs to charge different fees at different times. Higher during traditional rush hours, lower at other times.

The technology exists that the price can change every few minutes in response to changes in congestion. California does it now.

Economic Logician said...

First time I see this idea of redistributing the congestion charge directly to residents. In a sense this is equivalent to a reduction in taxes, only it would be a lump sum reduction. This would make the remaining taxes more progressive. However, I wonder how all this would be absorbed by higher housing prices as these tax rebates are clearly locational rents.

Also, to some extend London already charges different amounts during the day: there is no charge at night.