Sunday, August 19, 2007

Mea culpa

The current Journal of Economic Literature (June 2007) includes "Automobile Externalities and Prices" By Ian W.H. Parry, Margaret Walls and Winston Harrington.

They begin by noting "Of all consumer products, few are taxed more heavily or regulated more extensively than automobiles ..." They then survey the large literature covering all possible manner of externalities (greenhouse warming, oil dependency, local pollution, congestion, accidents) and add them up for a sum of 10 cents per mile. They conclude: "It could be argued that the externality rationale for higher fuel taxes has come and gone. Electronic road pricing offers the only real hope for addressing relentlessly increasing urban gridlock, while encouraging a transition to mileage-based insurance would inprove highway safety more effectively."

Harry Richardson and I have long argued for the benefits of flexible land markets as a traffic safety valve. But as these become clogged with fees, controls, politics and approvals requirements, the weight given to the tolling option grows.

But in my previous posts on the costs and benefits of rail transit in LA I had assumed 90 cents per mile for auto externalities. I now appears that had been wildly overstating transit's economic efficiency. Mea culpa.