Geographic Area: California, USA
Focal Question: Can Peak-Load Pricing Combat Congestion?
Traffic Congestion has become the icon of Southern California. The congestion in Los Angeles has been rated the worst of any major city in the United States. The backups on the highways impose untold costs on the populace of California. Most evident is the opportunity cost of time spent sitting in traffic. Second, is the increased pollution resulting from cars travelling at less than optimal speeds. Third, the cost of gasoline wasted. Other costs include delayed deliveries of goods and services, increased wages for on the clock workers, and delays of emergency services. It is easy to see that the congested highways are not being run in the most efficient manner.
In an attempt to alleviate some of the pressure on the highway systems, the State of California Department of Transportation decided to implement a controversial toll lane along 10 miles of route 91, a highly congested artery. The reason for the controversy was twofold. First, the toll lanes were only 2 out of 6 lanes, and second, they would implement a variable-pricing scheme. The tolls would be highest during peak hours of demand for the roadway.
The State of California licensed the project to The California Private Transportation Company (CPT). They gave them the right to develop the 10 miles of median along the 91 freeway and implement a variable-pricing scheme. Instead of using standard tollbooths, which would only delay traffic, the company opted to use electronic transponders affixed to vehicle windshields. The transponder accounts are "loaded" with money by the drivers and the prevailing rate is deducted each trip through signals sent and received by subterranean wires. To ensure against unauthorized access of the lanes, the company also set up cameras to record the license plates of anyone travelling in the lanes without a transponder.
The 91 Express Lane Project is the first congestion priced toll system in the country and the worlds first fully automated toll road.
Variable cost pricing is used in many different applications. Examples include long distance telephone rates, hotel room pricing, airline pricing, and even electricity pricing. The theory behind the pricing plans is simple. During periods of high demand, the prices are increased. This accomplishes two goals. It increases revenues, and decreases demand. In a situation like traffic congestion, these both are positive results. Peak pricing is a great example of demand side management: when existing resources are being pressured, instead of simply increasing the supply of the resource, you attempt to decrease the demand for the resource.
Under present circumstances, people driving onto congested roadways during peak hours are adding to collective costs by increasing delays for others, but they are not required to pay the full costs generated by their behavior. They must pay their own time delay, but they are not charged for time delays their entry imposes on others. Under this model, motorists continue to enter the roadway even when the average total cost exceeds the average benefit of using the freeway. The theory behind the Express Lane Project is that if you implement high enough costs (tolls) to the individual drivers in the express lanes, you can reduce the number of drivers and ensure the convenience of nonstop driving.
The Express Lane Project has raised many concerns by public activist groups. Before it was implemented, the Highway Project was criticized under issues of inequity and privacy. The most vehement opposition was that it would permit individuals with high enough incomes to travel during the most convenient times, while poorer people would be stuck in traffic watching the expensive cars race by them. The opponents dubbed the express lanes "Lexus Lanes." Another issue raised by opponents of the lanes was a privacy issue. They believed that computerized vehicle tracking could constitute an invasion of privacy. Opponents of Big Brother feared that this was just another way that government could track individuals movements, stripping them of their freedom.
In actuality, the implementation of the express lanes has been a relative success. Drivers who have been willing to pay the fees have enjoyed the benefits of shaving about 20 minutes off the 10-mile commute. Prices range from 60 cents to $3.50 each way depending on the time of the day. Costs have been on the rise however, as more and more commuters are signing up for the transponders. Originally, in 1996, the peak price was a mere $1.50. The price hikes have been necessary in order to keep the commute congestion free. According to a California Dept. of Transportation official, "There is no limit on how high (the price) can go in theory, the only limit is how much people are willing to pay and whether they want that convenience. I think all of the toll roads are based on the idea that people are willing to pay out of their own pocket for the convenience of a separate lane. Those who dont care to use it dont have to." Incidentally, officials have claimed there are, "as many Hondas as Lexus using the 91 Express Lane."