Durning chooses something contrarian – from Governing:
.
The Economic Case for Free Bridges and Roads
by Alex Marshall
.
Back in the dark ages of the late 1970s, at Carnegie Mellon University in Pittsburgh, my professor in Economics 101 said the ideal price for crossing a bridge built at public expense was zero, provided it had capacity. Setting as low a price as possible means that more people will cross it, and thus the cost per person per crossing will be the lowest, compared to the cost of constructing and operating the bridge. A private company would maximize revenues, but government should maximize usage, he said. That way the public, who paid for the bridge, got the most for its money. This principle, he said, should be applied to all public goods.
The idea surprised me at the time, because usually economists preach the virtues of profit and the efficiencies of the private marketplace. Yet here was an expert saying “free” made sense, and was actually more efficient. …
Yet this economic proof is barely ever discussed. This isn’t to say we should never charge a toll or a fare, particularly when there is more demand than supply. But we shouldn’t forget the principle: The price of public goods should be kept low in order to increase use. …
Brendan O’Flaherty, author of the textbook City Economics and an expert on transportation pricing, confirmed my decades-old memories. Using a bus, bridge or subway should be free if there is space or capacity. This isn’t about socialism, it’s about getting maximum use of public resources. The idea of a project paying for its capital and operating costs through direct user fees just leads to inefficient use. “For something that really is a public good, that is nonrivalrous and has no externalities, the price should be zero,” O’Flaherty says. “In general the price should be no higher than the marginal social cost of use, which is approximately nothing, except for pollution and wear and tear on the road.” …
When we move from the domain of transportation, we see the principle at work in an institution generally supported by the entire bandwidth of political opinion: public libraries. We don’t pay for libraries through check-out fees on books. Instead, we allow nearly unlimited use of all the books — for free, paid for through general taxes. If we did require user fees to pay for libraries, the institution would shrink to a small room harboring a handful of dogeared bestsellers.
Can we remember this principle when it comes to roads and subways, museums, national parks and historical sites? Quality of life expands — as well as economic growth — when the price of public goods, particularly transportation, is kept low. When roads, buses, subways or public bikes are free — or nearly so — people will head for a new lunch spot or take the family to the park. And they usually do this “off-peak,” when capacity is the highest. We put a lot of money into public museums and national parks. Why not maximize their use?
I would agree with you, Alex, if governments, or anyone, had to pay directly for services in terms of cost-per-unit of use. Unfortunately we don’t. We simply pay their cost. This includes governments. A $500M bridge won’t cost any less if it’s used by 30,000 people per day or 40,000. The benefits received in return for that investment are a different story, but there’s another type of efficiency that the real world imposes upon us.
If a private entity wants to front the tab for a bridge, for example, that’s half a billion the government doesn’t have to shell out (notwithstanding all of the insane risk they carry to ensure the private entity’s investment and other, associated infrastructure costs) but ‘receives’ the benefit in the form of the bridge itself for public use. If the choice is building its own bridge for $500M and not tolling it for greater use, or having someone else pay for it (again, in theory) and having slightly less use, foregoing the immediate cost in return for slightly fewer benefits (or less efficiency) is the choice being made by governments.
I don’t mean to justify or defend the use of P3’s. They are very risky and ultimately backed by governments anyway. But they make a certain kind of sense when you consider the fact that we pay for what we perceive as the full cost of things. If someone else is willing to cover the front costs, we’ll settle for a slightly reduced benefit (or ‘efficiency’). And these costs are not lessened based on their use-per-unit. Your Economics professor’s particular notion of efficiency of cost is immaterial to the real world.
“…the ideal price for crossing a bridge built at public expense was zero, provided it had capacity.”
Capacity – aye, there’s the rub! When demand exceeds capacity then it actually works against the public good. Pricing seems to be the most effective way to solve that problem.
There’s another big question that also needs to be asked: would the money spent on a road (newly built, expanded or maintained) bring the most benefit to the public, or is there some other use of that money which would provide a broader or more important benefit?
There are two prices: time and money. People often forget the former.
The price of public goods should be kept low in order to increase use.
That is probably why
+ water is free in Vancouver
+ we don’t have pay per use gargabe fee in Vancouver too
+ SeaToSky Highway is “free”
+ BC ferries should be free.
+ we should be against carbon tax, gas tax…
+ Electricity should be free too…
You get the picture!
I would never describe gas or pollution as “public goods.”
Don’t forget public schools.
Why are public schools or the public healthcare system free, yet water, garbage pickup or electricity is not ? All 5 are required to live in a city like Vancouver, yet 2 are free and 3 are not. Why ?
Public healthcare is very much not very, you pay MSP premiums per month (on top of the taxes that go into health care). Those premiums are more than I pay for either water, garbage (which includes recycling and compost) or electricity.
Yes, another tax really. But INdependent of use !
I purposely “forgot” public school nd healthcare.
They are in another categories:
kids don’t choose how wealthy their family is
and people don’t choose how healthy they are too.
making all that free, is providing equal oppurtinity to everyone (and incidentally good for the economy according some thesis).
We can’t say the same of driving
“For something that really is a public good, that is nonrivalrous and has no externalities, the price should be zero,” O’Flaherty says. “In general the price should be no higher than the marginal social cost of use, which is approximately nothing, except for pollution and wear and tear on the road.”
It’s not clear to me that any of these conditions apply to roads & bridges. There’s always a trade-off between personal vehicles, public transit, cycling and walking so there will always be rivalries. There are huge externalities in terms of pollution, land-use and congestion which are definitely NOT “approximately nothing”. And there will be increasing pressures to handle growth in a sustainable way which is strongly at odds with free roads.
Correct. A bridge needs replacing every 50 years or so, and a road needs repaving every 15 years or so etc. .. and as such free roads, especially in an age of more e-cars and more and more fuel efficient cars, should be a thing of the past. Gasoline fuel tax is the main source of paying for roads, bridges and tunnels and that fuel tax is probably too low already, and a poor approximator in an age of more e-cars and more and more fuel efficient cars, as a small car with 4 people in it using 5l/100km might damage the road as much as a bigger car with 1 person in it using 10l/100km, yet one pays only 50%, and the Tesla guy pays nothing.
Free use triggers abuse or excessive use. See education, healthcare, roads, .. and as such a modest fee is warranted. Using heathcare as a similar example to roads, as both are bottlenecked expensive systems, we have to install systems or procedures to prevent excessive free use.
“free” in monetary terms is often replaced by “not free in terms of time spent waiting” i.e. we pay in time.
As such, both time and money have to be taken into equation, not just money.
Given shrinking public budgets only the very basic use should be free, everything, even moderately convenient, should have some form of user fee on it. So free books: yes. Free internet use: no. Free annual checkup: yes. Free cosmetic ear correction: no.
Free use of roads, except rush hour or time saving tunnel or bridge .. etc.
We expect too much free stuff from our meagre tax $s and that is the core reason (besides excessive public sector wages and benefit packages) for our excessive deficits in a democracy !
If for example rents were frozen then half of the population would have more money to pay for things that are currently free! Rents are not a form of affordable housing since renting over a life time will cost 5 times more than paying off a mortgage for a similar residential unit. This is the primary reason why no-down-payment mortgages should be made available.
Yeah, can’t have any of that free education and health care, can we?
This is, in fact, “The Economic Case for Free [public services].” If we apply it to roads and bridges, we must logically apply it to all modes of transportation and, by extrapolation, to healthcare, education and all other public services. There is no justification for applying it piecemeal. Tax and user fees are man-made evils, yet we regularly accept them as “necessary” evils. Perhaps, we should reconsider our complacency.
The public good:
the rationale is that if variable costs are zero, and there is social benefit to each person crossing the bridge, we should want to maximize the number of people crossing the bridge if we want to maximize social benefit.
Of course, this implies a veeeeery simple model. I laughed out loud when I read “this economic proof…” This is not a “proof” lol.
In reality, variable costs are not zero. There are maintenance costs on big bridges, and, of course, the many well documented social costs associated with driving. As well, there is a congestion externality for each person crossing the bridge, which is not present in the “model” (if I can even loosely call it that).
As well, this concept of “Pareto Efficiency”, which economists often use as a basis for decision making, is not necessarily the best for the real world. An outcome is Pareto Efficient if “you can’t make anyone better off without making someone else worse off”. This concept has NO notion of “fairness” in it. An extremely unfair allocation of resources can be Pareto Efficient.
Applied economics often sacrifices efficiency to achieve fairness. It’s true that taxing each driver who crosses the bridge at a rate above the variable costs will cause inefficiency, but if we use those revenues to build future bridges, rather than taxing the public, we introduce some idea of fairness to public finance. Those who cross bridges pay for the construction of new bridges.
Whoever wrote this was not an economist.
When we start applying algoryrythms to human nature – hey, it’s Halloween – and sell it as as a science, we got problems. No, let’s just call it economics. Alors!
Very similar arguments have been made for “free” transit networks, for example in Tallinn, Estonia. As with many public goods, small user fees for transit prevent a wide array of externalities, in addition to providing revenue for the system. These include vandalism, use of facilities for activities other than transit, and inefficient use leading to greater long-term wear. You also need a system that a sufficiently large portion of the population uses regularly, to justify funding from general tax.
I think the evidence argues for a small user fee for most public goods (including roads).