The Economics of Traffic Congestion

Like most people who must commute to work, I am forced daily to think about the perpetual problem of traffic congestion. It may seem like a pretty mundane thing to write about. It’s not really controversial; nobody likes being stuck in a traffic jam. But attempts to solve traffic problems can be very controversial. For example, if a solution involves building more roads or widening existing ones, there are issues of how to pay for the construction. Should state or local taxes be increased? Should a revenue bond be issued to raise the money? Should new residential development be restricted? I’d like to spend a little time thinking about the basics of the problem before moving to proposing solutions.

On the surface, the problem of traffic congestion really seems like a straightforward one: too many cars trying to use a limited road network. But the causes of traffic congestion are many and varied, so any potential solutions will not be simple ones. I propose that, fundamentally, traffic congestion is a function of economics; that is, the choices we make regarding our desired outcome (a smooth and easy commute) and the costs of our choices, whether those costs be monetary, or in the frustration we experience when we are delayed in reaching our destination due to a traffic jam.

When designing highways, traffic engineers are trying to maximize the flow of traffic. That is, they are trying to design a system that will allow the movement of the largest volume of vehicles as rapidly as possible. This flow is the product of traffic density (the number of vehicles that can fit in a linear stretch of roadway) and the average velocity of the traffic. There is a theoretical maximum flow a highway can accommodate. You’ve probably experienced this when you’ve been in a very fast moving flow of very dense traffic. This can be a dangerous time because the least perturbation in the flow will cause a car to slow suddenly, causing a wave of brake lights to come on and the average velocity of all the vehicles drops dramatically. This is illustrated in the graph below. Traffic flow increases gradually with traffic density until this magical maximum is reached, at which point the efficiency of the roadway begins to degrade as traffic velocity approaches zero.

In theory, one could achieve a higher traffic flow, but to do this, drivers would have to surrender their autonomy as drivers: each vehicle would be bumper to bumper – almost connected like cars in a train – such that all the vehicles moved as one. This would maximize the traffic density. If all the vehicles moved simultaneously (and didn’t change lanes) very high speeds could be reached and thus traffic flow would increase with no possibility of traffic jams. Of course, that isn’t reality! The whole idea behind the private automobile is the freedom and autonomy of being able to control where you want to go. Optimal traffic flow requires the cooperation of many individual drivers following (hopefully) a standard set of traffic regulations.

The notion of autonomy and control of our cars gets us back to my thesis that traffic congestion is primarily a function of economic choices. If we try to solve the problem of traffic congestion by widening existing roadways or building additional ones, we will simply have increased the opportunity for more vehicles to be on the roads without having done anything to improve the efficiency of the traffic flow (remember that traffic flow is made up of the number of cars on the road and the speed they are traveling). I propose that we first focus on solutions that target these two components of traffic flow. Such solutions would simply do two things: they would reduce the number of vehicles on the road (traffic density) and regulate the traffic velocity. The solutions I am in favor of are also economic solutions, because they involve choices with costs and benefits.

At six AM on a Sunday morning, you will likely have no traffic problems, but at seven AM on Monday morning… needless to say, the time of day and the day of the week has a significant impact on the number of vehicles on the road. Here are several ways this number can be reduced:

• Carpooling – one of the reasons that higher gas prices are not necessarily bad is that it forces commuters to consider choosing the minor inconvenience of sharing a ride with two or three others who are going to the same destination. When gas prices topped $4.00 a gallon a year and a half ago, several of us at work decided to explore a carpool. We were amazed to discover how many of us lived close enough to each other that it made sense to consider. Now, when three of us ride in to work together, we are effectively taking two unnecessary vehicles off the road. The carpool has the added benefit of reducing wear and tear on our vehicles, not to mention the savings in fuel costs.
• Congestion Pricing – Most drivers use the road as if it were a commodity they didn’t have to pay for. We know from basic economics that when you reduce the price of something, the demand for it increases. So if drivers perceive that they are not having to pay for the privilege of using a stretch of highway, they will think nothing of using as much of it as they want. Many localities around the country are now considering imposing tolls or fees on particularly congestion prone segments of highways. These tolls are graduated based on the time of day and day of the week. So the highest tolls would be imposed during morning and evening rush hours, while there might be no toll at all on Sunday. The city of London, England has had great success in using congestion pricing to reduce the number of vehicles coming into the city during weekdays. This is truly an economic decision: it forces drivers to compare the benefit of taking a particular trip to the cost. And before you leap to the conclusion that such congestion pricing amounts to economic discrimination, realize that possessing a driving license is a privilege, not a right. Collecting tolls directly supports the maintenance of roadways, bridges and tunnels, and reduces the tax burden for everyone.
• Mass Transit – Bus and streetcar service is widespread and convenient in Europe. It is not as popular in the US because our larger distances and suburban-style residential development have made the automobile the transportation means of choice for most people. But particularly as fuel prices increase, more and more Americans will be willing to consider public transit as a viable alternative to private cars for routine commuting.

We haven’t even touched on the related topic of urban planning and its effect on traffic volume. This addresses the fundamental reason we need to commute in the first place because it addresses where we live and work, the origin and destination of virtually all commutes. In a future blog posting, I’ll try to get to the second component of traffic flow, which is velocity. There are actually unexplored economic solutions to this part of the problem as well. All that is needed to get some of these ideas “on the table” is a little creativity and a willingness to risk being laughed at. I’ll give you a chance to laugh in a future column!