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Applied Micro > Congestion charge > Flashcards

Congestion charge Flashcards

1
Q

why is congestion a problem

A

externalities

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2
Q

externalities d

A

one person’s actions affect another person’s well-being and the relevant costs and benefits are not reflected in market prices

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3
Q

what are the externalities of driving

A 
local air pollution,
global pollutants,
congestion,
accidents,
noise,
road damage
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4
Q

why is congestion bad

A

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

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5
Q

how is the MPC (marginal private cost) affected by congestion externalities

A

it rises because journey time increases with number of drivers

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6
Q

look at diagrams for congestion

A

in folder in designated area

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7
Q

what is the marginal external cost

A

marginal social cost - marginal private cost

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8
Q

how do you show marginal external cost on a diagram

A

first page of written notes

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9
Q

where is the initial equilibrium for the externalities diagram

A

where MPC = P(q) (demand)

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10
Q

where is the socially optimal point for externalities

A

where MSC = P(q) (demand)

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11
Q

what are the two ways to get from the initial point to the socially optimal point q* for congestion externalities

A 
quantity rationing (typically based on number plates only let certain drive at certain times),
price rationing (increase price until get to point)
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12
Q

example of where they used quantity rationing for congestion charge

A

athens drivers with even numbered plates on even days of the month and odd on days of the month with odd numbers

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13
Q

what is a pigovian tax (also spelled pigouvian)

A

a tax on any market activity that generates negative externalities

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14
Q

what is a pigouvian tax (pigovian) intended to do

A

correct an inefficient market outcome by being set equal to the social cost of the negative externalities

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15
Q

what does the pigouvian tax need to be set equal too

A

the social cost of the negative externalities

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16
Q

what are the problems with road pricing in practice

A 
uncertainty about estimating msc and mpc etc,
technology and administration costs,
public opinion (people might not like so vote against etc)
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17
Q

what are the things you need to consider when thinking about quantity versus price rationing *

A

effectiveness (what is going to achieve q* with more certainty),
efficiency (which delivers lowest social cost/biggest social benefit),
equity (which is fairer)

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18
Q

what does equity mean for congestion charge

A

which is fairer

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19
Q

what does effectiveness mean in terms of the policies for congestion charge

A

which is going to achieve q* with more certainty

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20
Q

what does efficiency mean in terms of the policies for congestion charge

A

which delivers the lowest social cost/biggest social benefit

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21
Q

what is the effectiveness of quantity rationing

A

effective in the short run, in the long run households may adapt (multiple cars/license plates)

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22
Q

what is the efficiency of quantity rationing

A

does not account for demand for driving, some may be more affected than others, buying second car more costly than congestion charge

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23
Q

what is the equity of quantity rationing

A

in the short-run all treated the same, cost of rationing may be increasing with income

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24
Q

what is the effectiveness of price rationing

A

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

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25
Q

what is the efficiency of price rationing

A

assuming effective, this would be socially efficient

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26
Q

progressive tax

A

proportion of tax you pay increases as your income goes up

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27
Q

is a congestion charge a progressive or regressive tax

A

as a flat rate it is regressive because the lower income you have the higher that is as a percentage of your income

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28
Q

talk about whether price rationing is equitable

A

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

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29
Q

what is the behavioural perspective of congestion charge

A

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)

30
Q

example of behavioural perspective for congestion charge

A

5p plastic bag tax changes perspective

31
Q

facts about london congestion charge

A

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

32
Q

was the london congestion charge (2003) seen as successful or not

A

initially seen as huge risk, now seen as very successful

33
Q

what are the costs of the congestion charge

A

people have to pay the charge,

costs of implementing and running the scheme, increased costs to people who no longer drive

34
Q

what are the costs of implementing and running the scheme

A

measurements,
cameras and signs,
tickets that are sent out and collected,
system needed to deal with those

35
Q

what are the benefits of the congestion charge

A 
revenue from the charge,
reduced congestion (faster journey times),
improved air quality, more pleasant environment
36
Q

what are total direct costs for the congestion charge (2005)

A

£133m

37
Q

what are the total revenues from the congestion charge (2005)

A

£120m charge penalties,
£70m penalty payments,
£190m total

38
Q

what is the revenue - cost for the congestion charge (2005)

A

£190m - £133m = £57m financial surplus

39
Q

what do you need to know to measure the benefits of reduced cost of driving

A

how many people still drive,
how much did ‘cost’ of driving fall (faster journey times),
what is the monetary value of those time savings

40
Q

what do you need to know to measure the lost consumer surplus for people who stop driving

A

how many people stopped driving,

how much did they value those journeys (net of cost)

41
Q

what were the outcomes from leape

A

speed up 17% which has reduced journey times by about 10 mins per trip,
reliability savings assumed to be 30% of time savings

42
Q

what are two ways of establishing what the value of time is

A

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

43
Q

explain revealed preference approach to measuring the value of time

A 
gross wage (pre-tax) = measure of marginal productivity,
survey informations on wages of different types of passengers
44
Q

what are assumptions of revealed preference approach to measuring the value of time

A

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

45
Q

example of a choice experiment for working out how much people value time

A

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

46
Q

what is public economics

A

study of the role of the government in the economy

47
Q

how is the government instrumental in economic life

A

government in charge of huge regulatory structure,
taxes,
expenditure,
macro-economic stabilisation through central bank

48
Q

what is normative public economics

A

analysis of how things should be

49
Q

what is positive public economics

A

analysis of how things really are

50
Q

what does paternalism mean

A

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

51
Q

what does individual failures mean

A

individual and market failures exist, sometimes people behave irrationally, government needed for pensions etc

52
Q

what is Pareto efficiency

A

where no one person in society can be made better off without making someone else in society worse off

53
Q

example of when pareto efficiency doesn’t make sense

A

if one person in society has all the wealth it is pareto efficient (because would make that one upset if distributed)

54
Q

what is the pareto condition

A

if every individual prefers any alternative x to another alternative y, then society must prefer x to y

55
Q

why might government intervention be desirable

A

externalities,
imperfect competition requires regulation,
imperfect of asymmetric information,
agents are not rational (myopic agents might not save enough for retirement)

56
Q

what is a social welfare function

A

a function that aggregates individual utilities in order to determine the socially optimal choice across policy options

57
Q

what does consequentialism mean

A

actions are judged only by their consequences

58
Q

Sen’s capabilities approach

A

outcomes should be measured by the opportunities and capabilities that they create or destroy for individuals

59
Q

what did plato suggest about wealth and power

A

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

60
Q

what is the elasticity of speed with respect to quantity of drivers

A

how sensitive is speed on the road with respect to the traffic volume on that road

61
Q

what is pcu

A

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

62
Q

what do drivers not take into account

A

the negative effect that them driving has on the effect on the speed of everyone else

63
Q

what is a Pivovian tax (also spelled Pigouvian)

A

a tax on any market activity that generates negative externalities (costs not included in the market price)

64
Q

what does a tax on congestion do to the private cost for the drivers

A

tax increases the private cost for the drivers so it internalises the external cost

65
Q

what does the carrot and stick mean

A

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

66
Q

what is the stated preference approach to valuing time

A

choice experiments, individuals presented with hypothetical choices with trade-offs to identify valuation

67
Q

what are the three social welfare approaches

A

utilitarian approach,
Rawlsian approach,
capabilities approach

68
Q

what is the utilitarian approach

A

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)

69
Q

what is the Rawlsian approach

A

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

70
Q

what is the capabilities approach

A

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

Applied Micro (8 decks)

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