Congestion charge Flashcards
why is congestion a problem
externalities
externalities d
one person’s actions affect another person’s well-being and the relevant costs and benefits are not reflected in market prices
what are the externalities of driving
local air pollution, global pollutants, congestion, accidents, noise, road damage
why is congestion bad
as traffic volumes increase in a given road space, the average speed of all vehicles slows down, and time costs are thus imposed on other road users
how is the MPC (marginal private cost) affected by congestion externalities
it rises because journey time increases with number of drivers
look at diagrams for congestion
in folder in designated area
what is the marginal external cost
marginal social cost - marginal private cost
how do you show marginal external cost on a diagram
first page of written notes
where is the initial equilibrium for the externalities diagram
where MPC = P(q) (demand)
where is the socially optimal point for externalities
where MSC = P(q) (demand)
what are the two ways to get from the initial point to the socially optimal point q* for congestion externalities
quantity rationing (typically based on number plates only let certain drive at certain times), price rationing (increase price until get to point)
example of where they used quantity rationing for congestion charge
athens drivers with even numbered plates on even days of the month and odd on days of the month with odd numbers
what is a pigovian tax (also spelled pigouvian)
a tax on any market activity that generates negative externalities
what is a pigouvian tax (pigovian) intended to do
correct an inefficient market outcome by being set equal to the social cost of the negative externalities
what does the pigouvian tax need to be set equal too
the social cost of the negative externalities
what are the problems with road pricing in practice
uncertainty about estimating msc and mpc etc, technology and administration costs, public opinion (people might not like so vote against etc)
what are the things you need to consider when thinking about quantity versus price rationing *
effectiveness (what is going to achieve q* with more certainty),
efficiency (which delivers lowest social cost/biggest social benefit),
equity (which is fairer)
what does equity mean for congestion charge
which is fairer
what does effectiveness mean in terms of the policies for congestion charge
which is going to achieve q* with more certainty
what does efficiency mean in terms of the policies for congestion charge
which delivers the lowest social cost/biggest social benefit
what is the effectiveness of quantity rationing
effective in the short run, in the long run households may adapt (multiple cars/license plates)
what is the efficiency of quantity rationing
does not account for demand for driving, some may be more affected than others, buying second car more costly than congestion charge
what is the equity of quantity rationing
in the short-run all treated the same, cost of rationing may be increasing with income
what is the effectiveness of price rationing
need to know marginal external cost (hard to calculate) may be easier to calculate in the long run,
also need to know elasticity of demand for driving which may vary between short and long run
what is the efficiency of price rationing
assuming effective, this would be socially efficient
progressive tax
proportion of tax you pay increases as your income goes up
is a congestion charge a progressive or regressive tax
as a flat rate it is regressive because the lower income you have the higher that is as a percentage of your income
talk about whether price rationing is equitable
horizontal - yes because all individuals are treated the same,
vertical - higher income individuals do not pay a higher percentage of income but also depends on who benefits from the proceeds from the congestion charge
what is the behavioural perspective of congestion charge
effectiveness of price rationing depends on price elasticity of demand for driving,
extent individuals change their decision beyond what we would expect them to from a purely rational perspective (ex 5p plastic bag)
example of behavioural perspective for congestion charge
5p plastic bag tax changes perspective
facts about london congestion charge
flat charge applied to vehicles driving into or within central charging zone,
introduced 2003 by Ken Livingstone,
initially seen as huge risk, now seen as very successful
was the london congestion charge (2003) seen as successful or not
initially seen as huge risk, now seen as very successful
what are the costs of the congestion charge
people have to pay the charge,
costs of implementing and running the scheme, increased costs to people who no longer drive
what are the costs of implementing and running the scheme
measurements,
cameras and signs,
tickets that are sent out and collected,
system needed to deal with those
what are the benefits of the congestion charge
revenue from the charge, reduced congestion (faster journey times), improved air quality, more pleasant environment
what are total direct costs for the congestion charge (2005)
£133m
what are the total revenues from the congestion charge (2005)
£120m charge penalties,
£70m penalty payments,
£190m total
what is the revenue - cost for the congestion charge (2005)
£190m - £133m = £57m financial surplus
what do you need to know to measure the benefits of reduced cost of driving
how many people still drive,
how much did ‘cost’ of driving fall (faster journey times),
what is the monetary value of those time savings
what do you need to know to measure the lost consumer surplus for people who stop driving
how many people stopped driving,
how much did they value those journeys (net of cost)
what were the outcomes from leape
speed up 17% which has reduced journey times by about 10 mins per trip,
reliability savings assumed to be 30% of time savings
what are two ways of establishing what the value of time is
direct approach - ask individuals how much 10 mins is worth to them financially (subject to a lot of bias),
revealed preferences - observe decisions of individual and through decisions work out value of time to them
explain revealed preference approach to measuring the value of time
gross wage (pre-tax) = measure of marginal productivity, survey informations on wages of different types of passengers
what are assumptions of revealed preference approach to measuring the value of time
workers are paid their marginal product of labour,
unproductive time -> productive time (eg no leisure),
no (dis)utility of travelling,
small savings can be grossed up
example of a choice experiment for working out how much people value time
individuals presented with two hypothetical choices for a journey one quicker and more expensive and the other cheaper and slower and were asked to choose which they would prefer
what is public economics
study of the role of the government in the economy
how is the government instrumental in economic life
government in charge of huge regulatory structure,
taxes,
expenditure,
macro-economic stabilisation through central bank
what is normative public economics
analysis of how things should be
what is positive public economics
analysis of how things really are
what does paternalism mean
individual failures do not exist, people know exactly what they want the whole time that they believe is best for them,
only reason government gets involved is to impose its own preferences against individual’s will
what does individual failures mean
individual and market failures exist, sometimes people behave irrationally, government needed for pensions etc
what is Pareto efficiency
where no one person in society can be made better off without making someone else in society worse off
example of when pareto efficiency doesn’t make sense
if one person in society has all the wealth it is pareto efficient (because would make that one upset if distributed)
what is the pareto condition
if every individual prefers any alternative x to another alternative y, then society must prefer x to y
why might government intervention be desirable
externalities,
imperfect competition requires regulation,
imperfect of asymmetric information,
agents are not rational (myopic agents might not save enough for retirement)
what is a social welfare function
a function that aggregates individual utilities in order to determine the socially optimal choice across policy options
what does consequentialism mean
actions are judged only by their consequences
Sen’s capabilities approach
outcomes should be measured by the opportunities and capabilities that they create or destroy for individuals
what did plato suggest about wealth and power
plato suggests that the wealth and power of the most well-off should not be allowed to exceed that of the worst-off by more than 4 to 1
what is the elasticity of speed with respect to quantity of drivers
how sensitive is speed on the road with respect to the traffic volume on that road
what is pcu
for a car it is 1 and trucks are 1.5-3,
trucks have a higher impact in terms of congestion compared to cars so scales up the mcc
what do drivers not take into account
the negative effect that them driving has on the effect on the speed of everyone else
what is a Pivovian tax (also spelled Pigouvian)
a tax on any market activity that generates negative externalities (costs not included in the market price)
what does a tax on congestion do to the private cost for the drivers
tax increases the private cost for the drivers so it internalises the external cost
what does the carrot and stick mean
metaphor for use of a combination of reward and punishment to induce desired behaviour,
cart driver might activate a reluctant mule by dangling a carrot in front of it and smacking it on the rear with a stick
what is the stated preference approach to valuing time
choice experiments, individuals presented with hypothetical choices with trade-offs to identify valuation
what are the three social welfare approaches
utilitarian approach,
Rawlsian approach,
capabilities approach
what is the utilitarian approach
treat money as utility, would choose the policy with the highest overall monetary payoff across the population without distributional considerations.
if assume concave utility we might put greater weight on benefits for lower-income citizens (higher marginal utility of income)
what is the Rawlsian approach
says that society is only as well off as the worst-off individuals in society,
following this the proceeds of the charge would go towards programs to alleviate cost and negative impact of the congestion charge for lower-income households in the city
what is the capabilities approach
interested in the freedom to achieve well-being, would consider how to improve the potential to earn for residents of bristol, focusing particularly on deterred drivers which we said are likely to be low-income
