Congestion and political economyTodayCongestion externalitiesA simple exampleMore information on this exampleRoute choice and externalitiesWhy charging a toll is usefulAren’t tolls costs too?Equilibrium with tollsIn the following analysis…For efficiency, see the right columnWhat is efficient? 5 or 6 on bridgeThe above example with calculusSlide 14Real traffic problemsCan we build our way out?Increased capacity on bridgeIncreasing bridge capacityHOV lanesPrivate highwaysProblems with private highwaysPublic takeover of a private highwayPricing public roadsBenefits of congestion pricingExample: 91 Express Lanes toll schedulePublic transit and city designSlide 27Slide 28Slide 29Summary: Congestion externalitiesDemocracyDirect democracyUnanimity with public goodsDirect democracy: Unanimity rulesFeasibility of unanimity rulesMajority voting rulesJen: Double-peaked preferencesPreferencesSingle-peaked preferencesBack to Jen’s two peaksSuppose Angelina is in chargeThe median voter theoremSlide 43Six reasonable criteria for decision makingThe six criteria that Arrow proposedRepresentative democracyMedian voter theorem in one dimensionImplications of the median voter modelLogrollingSlide 50Welfare-improving logrollingBring on the porkPublic employeesNiskanen’s model of bureaucracyWhat can the politician do?Special interestsRent-seeking behaviorOther people involvedSummary: DemocracyCongestion and political economyToday: An application of externalities using congestion; Direct democracy; Indirect democracyTodayA real-life example with externalitiesAutomobile congestionSome economic tools to analyze the situationEquilibriumMarket failureChapter 6Political economyDirect democracyRepresentative democracyCongestion externalitiesCongestion is a big problem in urban areasPossible solutions to the problemTolls on congested routesBuilding our way out of congestionHOV lanesPrivate highways and express lanesMonopoly power?Public transit and city designA simple exampleChoose between a highway and a bridge highway bridgeMore information on this exampleTravel time on the highway is 20 minutes, no matter how many other cars travel on this routeThe bridge is narrow, and so travel time is dependent on the number of other cars on the bridgeIf 1 car is on the bridge, travel time is 10 minutes; 2 cars, 11 minutes; 3 cars, 12 minutes; etc.Travel time is 9 + T minutes if T represents the number of cars on the bridgeRoute choice and externalitiesWithout tolls, equilibrium occurs with equal travel times on both routes11 cars on the bridgeHowever, there are negative externalities involved whenever an additional car travels on the bridgeImposition of a one-minute negative externality to cars already on bridgeWhy charging a toll is usefulWithout tolls, the bridge and highway have the same travel times in equilibriumTake away the bridge and nobody’s travel time changes  No social value to the bridgeWith tolls, some people can have shorter travel timesLower overall travel time improves efficiencyAren’t tolls costs too?If bridge tolls go to government, these are just transfers of moneyToll revenue can offset tax money that has to be collectedRemember that taxes have DWL, except in a case like this where negative externalities are presentIn this case, an optimal tax (which is a toll in this case) can reduce DWLEquilibrium with tollsSuppose each minute has $1 in time costs, and a $5 toll is chargedCost to travel on HW  $20Cost to travel on bridge  time cost + $5What is equilibrium?Each person on the bridge has $15 in time cost  travel time of 15 minutes  6 cars on the bridgeIn the following analysis……we assume 30 cars that must travel from A to BHow many cars should travel on the bridge to minimize total travel time?For efficiency, see the right column# on bridge Travel time on bridgeTotal minutes for bridge travelersTotal minutes for highway travelersTotal minutes for all drivers1 10 10 580 5902 11 22 560 5823 12 36 540 5764 13 52 520 5725 14 70 500 5706 15 90 480 5707 16 112 460 5728 17 136 440 5769 18 162 420 58210 19 190 400 59011 20 220 380 600What is efficient? 5 or 6 on bridge# on bridge Travel time on bridgeTotal minutes for bridge travelersTotal minutes for highway travelersTotal minutes for all drivers1 10 10 580 5902 11 22 560 5823 12 36 540 5764 13 52 520 572551414707050050057057066151590904804805705707 16 112 460 5728 17 136 440 5769 18 162 420 58210 19 190 400 59011 20 220 380 600The above example with calculusTotal travel time for all cars20 (30 – T) + (9 + T) T600 – 11T + T2First order condition to minimize travel time– 11 + 2T = 0T = 5.5Is this a minimum or maximum?Try second order conditionThe above example with calculusSecond order condition to check that this is a minimum2 > 0Positive second order condition  MinimumSince fractional numbers of cars cannot travel on a route, we see that 5 or 6 cars minimizes total travel timeReal traffic problemsLos Angeles metro areaSome refer many of these freeways to be parking lots during rush hoursCan we build our way out?Some people believe that we can build our way out of congestionLet’s examine this problem in the context of our exampleIncreased capacity on bridgeNew technology leads to bridge travel time at 9 + 0.733TEquilibrium without tolls: T = 15, 20 minute travel times for all once againIncreasing bridge capacityIncreased capacity leads more people to travel on the bridgeIncreasing freeway capacity creates its own demandSome people traveling during non-rush hour periods will travel during rush hour after a freeway is expandedFreeway expansion often costs billions of dollars to be effective during peak travel periodsHOV lanesHOV lanes attempt to increase the number of people traveling on each lane (per hour)These attempts have limited successBenefit of carpool: Decreased travel time, almost like a time subsidyCost of carpool: Coordination costsProblem: Most big cities on the west coast are built “horizontally”  sprawl  limits effective carpoolingPrivate highwaysUses prices to control congestionPrivate financing would prevent tax money from having to be usedMore private highways would decrease demand for free roadsProblems with private highwaysMonopoly powerPositive economic profits