Wharton professor Gilles Duranton talks about his research on congestion in cities.

Is a traffic tax the solution to congestion in cities? Not necessarily, according to research from Wharton real estate professor Gilles Duranton. He recently spoke to [email protected] about the findings of his study, which is being funded by the Mack Institute for Innovation Management.

Traffic Tax Congestion
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Traffic Tax

An edited transcript of the conversation follows.

[email protected]: Could you start by telling us about your research?

Gilles Duranton: My research interest is in congestion because we all perceive that congestion, when we live in large cities, is a big problem in our life, right? It prevents us from going places when we want to. It is making our commutes longer than perhaps they need to be. In time use surveys, when we ask people what is the thing that they dislike the most in their life, they usually mention congestion as number one. Perhaps surprisingly, they mention childcare together with household chores as number two.

To assess the social cost of congestion, I looked at one particular city, Bogota, Colombia. I chose Bogota because I think we know far less about congestion in developing countries where it may be an even bigger problem than in developed nations. The way I think about the problem is the following: When you take your car and ride, you pay a time cost. One component of it is the time cost of going from one place to another without traffic. Then, there’s the traffic of others that slows you down. But you also slow down everybody else.

So there is a difference between how much you pay — what is the time you spend while traveling, which is your private cost of going places — relative to actually how much you cost to society by imposing more congestion on others. So, the others are imposing some congestion on you but you impose some congestion on others. [Since we think that more travelers cause travel costs to increase, the cost we impose on others is larger than the cost they impose on us.]

To quantify these costs, I start with data from an actual travel survey. I need to know where people go. On the supply side, I’m interested in how much slower traffic gets as you have more drivers. I’m trying to compute that quantity first. That allows me to infer both the private and the social cost of driving.

“The social cost of congestion is much smaller than we think.”

Of course, I am not looking at all the downsides from traffic. You also have really important issues such as pollution, accidents, and so on and so forth. But I’m only interested in congestion. That’s what I can measure, so that’s what I do. [This said, I only look at forms of transportation that take place on roads — cars, taxi, and small buses — but ignore large buses with rights of way since the congestion for that form of transit is different.]

On the demand side, I also need to know how much people pay for their travel in terms of time, when they choose to travel. But in order to know about that demand, I also need to know how much they would pay at times when they’re choosing not to travel. [In essence, I need to know at what price people buy transportation when they buy it and what the price is when they choose not to buy.] In order to get those counterfactuals, I’m scraping data from Google maps.

At the end of the day, what I find is that the demand for travel is mildly elastic. I think this is the first estimate in the literature, so hopefully that’s useful even though this first finding is not that surprising. But what is more surprising is what I find on the supply side. The wedge between the social cost of traveling and its private cost is actually far less than what we suspected, in the order of 5% to 20%, depending on the state of traffic. This is in contrast to the 100% or more that we were conjecturing before on the basis of studies of one particular road, or on the basis of some purely theoretical thinking.

[email protected]: What were your key takeaways from this research?

Duranton: My key takeaway is that actually the social cost of congestion is much smaller than we think. I am not saying that traveling in large cities is easy. I’m just saying that the pure social cost of congestion is actually pretty small.

[With a wedge of 5% to 20% between what we pay in time and what we impose on society, an optimal situation would not be that different from the one we currently observe. An optimal congestion tax would reduce traffic, but not that much. There is huge demand for travel, especially at peak hours. Yes, we could make traffic extremely fluid at all times by drastically reducing the number of travelers but that would be socially unproductive given that demand would no longer be served.]

All that means is that for a city like Bogota, and maybe for other cities, we may want to think beyond just curbing congestion by imposing a congestion charge. This is still a meaningful idea but perhaps not the game changer we thought it could be.

At the same time, maybe the real issues behind slow traffic are elsewhere. We may want to be thinking about how much roadway should cities provide and what sorts of transportation mode choices we want to give to people, whether it should actually be private vehicles or more public transit, or a mixture of the two [and in which proportion].

We also want to pay more attention to whether and how we should manage traffic, in terms of coordinating red lights. So, some of the big issues seem to be about the nitty-gritty of traffic management, beyond trying to curb demand.

[email protected]: Did any conclusion surprise you?

Duranton: The size of the social cost of congestion is much smaller than I expected. It’s also much smaller than everybody else expected, who are interested in transportation. As a result, I’m getting people who [are showing] slight disbelief.

At the same time, I think my findings are completely reasonable. The speed of traffic at the worst hours is only about half what it is at the best hours of the day despite the number of travelers being higher by a full order of magnitude. That suggests a wedge between private and social costs of perhaps 10%.

When you do, in technical terms, your “triangle” of welfare loss, you have a small wedge, multiplied by a small quantity divided by two, because that’s a triangle. It’s going to be at most 1% of the daily income that we actually lose in pure congestion.

So, what’s the problem? Again, there is strong demand, people want to travel and there’s only limited capacity for them to do so. That makes travel costly. But the pure external effect element is not that large.

[email protected]: What are the practical implications of your research? What can other large cities do with this information?

Duranton: Actually, I’m revising, again, my judgment about

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