Week 8-9 Transport Flashcards
What are the market failures in transport?
- Imperfect information
- Negative externalities
- Inappropriate government intervention
Why does the government intervene in the transport industry?
Specifically cars.
How do they do it?
Imperfect Information.
Public safety: i.e.:
- Is this car safe to drive? Is this airplane safe to fly? Do the other drivers know the road rules?
People have interest to ensure their cars and planes are safe à however do not have the skills or knowledge to ensure this.
Thus, govnerment intervention mandates minimum level of quality:
- Roadworthy certificate (RWC)
- Driver’s license
What are the negative externalities associated with transport?
Global and local/regional impact:
Global:
Cost (degradation of climate), incurred by the globe.
Depends on the fuel type and quantity used, but not the location and timing of emissions (i.e. uniformly mixed).
Therefore impact is proportional to fuel use and can be regulated at an aggregate level (point of sale, import, refinement)
Local and regional impacts:
Road and vehicle users do not bear the full cost:
- E.g.
- Health effects (e.g. particulate emissions, airborne lead emissions)
- Regional environmental effects (regional air pollutants, e.g. NO2)
- Barrier to wildlife movements and migration
- Noise
- Accidents
- Road and other infrastructure damage
What are the challenges faced by regulators when attempting to reduce local and regional negative externalities?
Consequences on the policy?
Mobility of pollution (rush house in metropolitian areas)
A large number of sources (monitoring and enforcement is difficult)
Individuals lack the knowledge to reduce their own pollution.
The consequence of policy is that location and/or time must be considered.
Need to reduce the externality at the right time and place.
How do we describe congestion as an externality?
As traffic increases, MPC and MSC diverge, why?
- Because as traffic increases, a driver will only consider the extra time, not the impact on other.
What are the approaches to reducing congestion?
Charging higher tolls during peak travel times. Could act as a mechanism for supply and demand.
Simple system:
- Toll depends on entry into area or time spent in area (e.g. London CBD zoning charge)
Advanced system:
- Use GPS, to track location and time, gives more detailed, dynamic pricing according to time and location.
Tolls have been used to take into account more factors: i.e. higher smog levels, or higher population levels.
Singapore - Market-based transport management
What are the 2 things they did?
Road pricing (tolls)
Peak hour pricing is used (depends on time of day and direction)
Charges based on type of vehicle and time of use
License Plates
Limited number of license plates
Auctioned every month
What are implicit subsidies?
Examples
Implicit subsidies are subsidies to road or public transport.
Examples:
- Road construction and maintenance, is funded from tax reenvue
- Free use of roads, but social cost assocaited with it.
- Public tranport is subsidized from general taxes:
- Construction of infrastructure in the form of tram lines, railway lines, stations …etc.
Consequences:
- Reduces demand for alternatives (e.g. bicycle)
- Encourages dispersed settlement (transport cost is below true cost)
- ‘path dependence’ à subsidies an urban layout develops that then necessitates the subsidies.
Describe the US CAFE Standards Case:
- How did it work?
- When was it enacted?
- What were the outcomes?
Case study: US CAFÉ Standards:
- Fuel efficiency policies – target the fuel consmption of vehicles
- CAFE=Coporate Average Fuel Economy
- Objective: reduce fuel consumption (for national security reaons)
- Method: mandate a minimum ‘miles per gallon’ for cars sold in the US
- CARS: higher fuel efficiency targets
- 18 miles per gallon (13.2 L per 100 kms) by 1978
- 27.5 miles per gallon (8.8 L per 100 kms) by 1985
- LIGHT TRUCK: lower fuel efficiency applied
- 17.2 miles per gallon by 1979
- 20.7 miles per gallon by 1996
Compliance was at manufacturer level, credits were offered for meeting the requirements, credits could be allocated to other not so efficient vehicles in the same manufacturer’s fleet.
Outcome:
- Resulted in some increase in efficiency
- Proportion of cars and light trucks on roads was not regulated.
- Emissions still increase, fuel efficiency increased, still: more fuel consumed than before.
- Rebound effect: lower cost per mile à increase amount of travel
-
New cars more expensive:
- Less uptake of more efficient models, hold onto older vehicles
- Sell old cars à lower price,lowers barrier for entry (increases the number of cars, more acessable for people who wouldn’t otherwise have bought a car)
Imports of fuel were reduce by 47%, what was the cause?
- Consumer preference -
2012: US Redesigns the CAFE Standard: - Standard are based on footprint
- Credit banking and borrowing, extended to 5 years
- Trading of CAFE credits among car manufacturers
- Gives firms incentive to find more cost effective ways to over-comply and sell credits.
- Extra credits were provided to particular classes of vehicles:
- Electric and fuel cell vehicles, MPG is times by 2.0
- Plug-in hybrids: MPG is times by 1.6
Accelerated vehicle retirement
CARS program
- What was it?
- Was it effective?
Rationing access in Mexico.
What were the outcomes?
Policy: A car could be driver for 6/7 days, the day it couldn’t be driven was indicated on license plate.
Outcome:
- Trips were reallocated to other days à overall miles did not change.
- High income families purchased another old car to drive on that day.
- Fuel demand, congestion and pollution increased by this policy.
What are situations where creating barriers to entry was inefficient?
Taxi Licensing:
- Usually regulated industry
- Need a licence holder, vehicle owner, driver, dispatch system, payment system.
- Fees are regulated, supply cannot react to demand (number of licenses are limited à prices cannot increase with demand).
- Government wants scarcity à more revenue from permit auction.
- Customers cant cheaper fairs.
Case Study: Victoria Taxi Industry:
- Licenses were auctioned
- Deregulation occurred - $1 levy charged.
How did the new share economy overcome these barriers?
Ride Sharing:
- E.g. Uber, Lyft, Didi, Ola
- Can better serve customers, and can adjust for supply and demand.
Car and Bike Sharing:
- Club membership
- Flexycar, GoCar, Zipcar, Car2Go
Carpooling:
- BlaBlaCar
What are the arguments for and against subsidising PT?
Arguments for and against subsidising public transport:
For:
- Sustainability à more people being transported lowers individual carbon footprint
- Accessability – youth, disable and elderly
- Better serviced by individual using vouchers (more targeted)
Against:
- Need to be provided consistently (even when low demand)
- Footprint increases significantly when low demand
- Create congestion (bus lane)
What is the case in the Melbourne bus system?
Moving from competition to regulation?
Previously: there was no subsidies, bus companies paid a negative externality tax for using roads.
- As alternatives rose, busses became less competitive.
- Organised an agreement with government
- Created a monopoly
- Bus companies paid per kilometre driven (regardless of passenger numbers)
- No incentive for patronage growth
- No incentive for fuel efficiency
- No incentive for capital efficiency
- Government adopts all the risk
- Everything is paid by general taxes.
- Bus companies are paid profit in relation to costs incurred (perverse incentives) à encourage bus companies to incur as many costs as possible (no incentive for efficiency)
- No incentive to adjust for supply and demand changes in the short run (unexpected).
- Punctuality:
- Trams and trains skip stops if running late, otherwise penalities.
- Buses: No reward/penalties for punctuality and reliability
- Fare setting
- Fee is ‘flat’ regardless of time of day
- Fees only cover about 25% of costs of PT
- Infrasturcutre (curb rights, and designated lanes) are free.
