2

Theory and Experience

Peak-period pricing of consumer goods and services is common throughout the economy. Resorts cost more during the high season. Flights scheduled at times preferred by business travelers (early morning and late afternoon on weekdays) cost a premium. Long-distance telephone calls cost more if made during working hours than if made late in the evening. As discussed in the first section of this chapter, there is a strong rationale for peak-period pricing of scarce goods subject to peak demands—doing so ends up costing society less of its available resources than either rationing use or expanding capacity to meet peak demand. In the subsequent section, various approaches are described that can be used to apply congestion pricing on road systems. The final section is a review of experience to date with congestion pricing worldwide.

THEORY

Whenever a scarce and valued good is free or underpriced, demand will outstrip supply. This is illustrated for the case of road use by the queues and traffic jams that occur when the number of motorists attempting to use a section of roadway at the same time exceeds the road's capacity. Long-distance telephone service is another example of a service that experiences peaking. Expanding capacity to meet peak demand results in



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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion 2 Theory and Experience Peak-period pricing of consumer goods and services is common throughout the economy. Resorts cost more during the high season. Flights scheduled at times preferred by business travelers (early morning and late afternoon on weekdays) cost a premium. Long-distance telephone calls cost more if made during working hours than if made late in the evening. As discussed in the first section of this chapter, there is a strong rationale for peak-period pricing of scarce goods subject to peak demands—doing so ends up costing society less of its available resources than either rationing use or expanding capacity to meet peak demand. In the subsequent section, various approaches are described that can be used to apply congestion pricing on road systems. The final section is a review of experience to date with congestion pricing worldwide. THEORY Whenever a scarce and valued good is free or underpriced, demand will outstrip supply. This is illustrated for the case of road use by the queues and traffic jams that occur when the number of motorists attempting to use a section of roadway at the same time exceeds the road's capacity. Long-distance telephone service is another example of a service that experiences peaking. Expanding capacity to meet peak demand results in

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion wasteful excess capacity unless the peak users are charged the full cost of the expansion. Long-distance telephone service allocates the demand with a market mechanism by charging a premium for a call during the peak and by offering discounts during the off peak. By shifting a small portion of the peak demand into the off peak, excess capital investments are avoided and society receives the service it requires at a lower cost. Consumers appear to accept a market-based system for allocating demand in long-distance telephone service with some equanimity, and experience with peak-period pricing in air travel suggests that these policies work and that they are accepted by the populace (Gillen, Vol. 2). In the case of roads, however, demand is allocated by congestion. Everyone who wants to travel in the peak tries to do so, and the excess demand causes congestion. Economists and travel demand forecasters believe that travel decisions are governed by the “full price of travel,” which includes the out-of-pocket expense plus the value of the time it requires. Given that even so-called free road use comes with significant congestion during the peak, it appears reasonable to ask why motorists willingly endure the delays that occur when they travel at the most congested times. Indeed, the available evidence suggests that when congestion gets bad enough, some travelers shift the timing of their trips. These shifts, however, are not enough to alleviate the crush. The reason that shifts in behavior by drivers confronted with congestion will never be sufficient to reduce congestion (without some form of pricing or rationing) is that motorists using the highways during the peak do not have to pay for the delays they cause each other. To illustrate this problem, imagine an 8-km (5-mi) long, high-speed segment of highway with a flow rate of 1,999 vehicles per hour in each lane. Such a flow rate would be quite high and nearing the point when the design capacity of the facility would be exceeded. As demand approaches capacity, the throughput of the facility begins dropping disproportionately, which causes delay to mount rapidly. Standard assumptions about vehicle speed under these conditions imply that the trip for the average vehicle will require 25 min (Wohl and Hendrickson 1984, 290). The next vehicle to enter the traffic stream will have a slightly longer trip than 25 min but would add about half an hour of delay to be shared by all the following motorists. This aggregate half-hour of added delay turns out to be fairly small when spread over the thousands of following motorists in the following hours (just 1 second each in this example), but these increases mount up as additional drivers enter the traffic stream. If 400 motorists were added to this traffic stream, the first few additional motorists would

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion be able to complete their trips by slightly more than the average amount of time, but by the time the entire 400 extra motorists had been added, the following traffic would need 34 min (an additional 9 min each) to complete their 8-km (5-mi) trip. In this example, a 20 percent increase in volume results in a 36 percent increase in the average time required to complete the trip. Congestion pricing would allow motorists to make peak-period trips under less congested conditions, but only if they are willing to pay for the delays they impose on each other.1 Making motorists pay for the delays caused others by their trips rather than just their personal costs would lead some to make other choices. They might decide to travel at another time, share a ride, take an alternative mode of transportation, or forgo the trip. The price would be set at a level that reduces congestion to its most efficient level, which can be shown to be the full monetary and time cost for using a segment of road capacity during the peak period (Appendix B). Congestion pricing might also induce other changes that would further reduce the demand for peak-period travel. Employers might shift their hours of operation, allow greater use of flex time by employees, or allow more telecommuting. In contrast, however, employers could also engage in efforts that would defeat the intent of congestion pricing, for example, by subsidizing the congestion fees paid by some employees (Deakin, Vol. 2). Over the longer term, pricing strategies might also affect land use patterns. These potential secondary effects, both short- and long-term, are poorly understood. (They are discussed in more detail in Chapter 3 and in the paper by Deakin in Volume 2.) Congestion could presumably also be controlled by regulation. Driving could be restricted by the same kinds of rationing schemes used during the fuel shortages of the 1970s. Motorists with license plates ending in even numbers could drive on even-numbered days and motorists with license plates ending in odd numbers could drive on odd-numbered days. Alternatively, trucks could be restricted from operating in congested corridors during peak hours, as has been proposed in some urban areas. Congestion pricing is advocated over a regulatory approach because allowing individ- 1   Motorists impose different costs on one another and on society. The text refers to the delay costs, which are the extra (marginal) time costs created when demand for road capacity exceeds supply. Other road user costs include wasted fuel and extra air pollution, the latter of which is a cost borne by the public. Congestion fees, as used in this report, are defined as marginal time costs. Full road pricing could be defined to include environmental, safety, and other costs of highway transport.

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion uals to choose whether to pay a congestion fee will result in a more efficient outcome. APPLICATION Congestion pricing could take several forms. The most straightforward example is to add an extra fee to an existing toll or to add a peak fee on an untolled route or bridge. The charge itself could be a simple peak/off-peak differential, or it could vary according to the demand imposed on a facility at a specific time. In more complex forms, it could apply to traffic on all routes entering a congested area, and the charge could vary according to the congestion on specific routes and the distance traveled. Alternatively, all motorists parking in a congested area could be assessed an extra fee to encourage them to use other modes or to share rides. In practice, congestion pricing could take six basic forms (Gomez-Ibanez and Small forthcoming): Point pricing, in which a highway user passing a point at a specific time is charged a fee for passing that point regardless of the distance traveled on a specific route (Figure 2-1); Cordon pricing, in which users wishing to enter a congested area are charged fees at each entry point into the area (Figure 2-1); Zone pricing, in which users traveling within a cordoned area also pay a fee; Higher charges for parking in congested areas, with particular emphasis on parkers traveling during the most congested period; Charges for distance traveled within a congested area or on a congested route (Figure 2-2); and Congestion-specific charges, in which users would be charged for both time spent and distance traveled. Currently the only forms of congestion pricing in operation are cordon pricing in Singapore and charges for distance traveled on the A-1 toll road outside Paris. Cordon pricing is also being applied in three Norwegian cities, but because the tolls do not vary by time of day (with a minor exception in Trondheim), these are not considered congestion pricing. The active proposals for congestion pricing in the United States are for point pricing. A hybrid version of point pricing has also been proposed in the United States; in this version, solo drivers would be provided with the option of paying to travel on underused high-occupancy-vehicle (HOV) lanes.

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion FIGURE 2-1 Examples of point pricing of traffic entering the central area. Point pricing could apply on (a) an individual route, (b) only the most congested routes, or (c) all the routes serving a central area. The first case would be facility pricing, the second would be an extended version of facility pricing, and the last would be a form of cordon pricing. Cordon pricing is planned for Stockholm beginning about 1997, and point pricing is being actively considered in the Netherlands. A multiple-cordon pricing system was studied for Hong Kong and is being studied for London (Gomez-Ibanez and Small forthcoming). Rapid innovations and applications in electronic toll collection technologies are making the more complex pricing versions (e.g., zone pricing and charges for distance traveled) increasingly feasible (see papers by Pietrzyk and by May in Volume 2). EXPERIENCE Singapore A simple form of congestion pricing has been in place in Singapore since 1975 (Hau 1992). Motorists wishing to enter the core area of the city covering 5 km² (about 2.4 mi²) during the morning and evening peaks

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion FIGURE 2-2 Examples of regional pricing. (a) Point pricing on all major radial routes serving the central area and major activity centers and a beltway surrounding the central city. (b) Charges for distance traveled on all major radial routes and a beltway. must display a windshield sticker. The sticker currently costs S$3.00 (about U.S.$1.80) per round trip. The stickers are enforced at 33 access points into the zone; these access points are not always monitored, but noncompliance has remained below 1 percent. Shortly after this system was imposed, the number of automobiles entering the central part of the city during the restricted hours declined by 44 percent. Almost 20 years later, and after several modifications to the program, automobile trips into the center city during the morning peak period remain some 25 percent below the 1974 level (Gomez-Ibanez and Small forthcoming).2 The Singapore program, however, did have some important design flaws. The road that circled the city could not accommodate the traffic diverted from traveling through the city. The time losses due to congestion caused on the ring road initially negated the time savings for travelers entering the city core; this problem was later alleviated by adding lanes to the ring road (Gomez-Ibanez and Small forthcoming). 2   As described in more detail in Appendix B., the evening peak period was not subject to a congestion fee and remained quite congested until a fee was imposed in 1989.

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion Despite the design flaws, the restraint on traffic growth into the urban core is all the more remarkable considering that during this same period Singapore's population growth exceeded 23 percent and employment grew by over 79 percent. Although Singapore is very different from metropolitan areas in the United States and the program design has some important faults, Singapore's experience indicates the effects that congestion pricing can have on reducing peak-period demand. No other travel demand management policy tried in the United States short of wartime gasoline rationing has been shown to have such a significant and lasting effect on automobile use. Singapore, of course, is not a Western-style democracy, and the fact that areawide congestion pricing could be introduced in Singapore is not evidence that it could be introduced and implemented in the United States. France Congestion pricing also has been shown to be effective on an intercity highway in France. A simple congestion pricing system has been implemented on a toll road outside Paris (the A-1) to deal with the weekend peak demand caused by the return of city residents on Sunday afternoons from weekend retreats (Gomez-Ibanez and Small forthcoming). The usual toll applies up until 2:30 in the afternoon. From 2:30 to 4:30 p.m. a discount is offered that is 25 to 50 percent (depending on the length of the trip) below the normal toll. From 4:30 to 8:30 a premium is charged that is 25 to 50 percent higher than the normal toll. After 8:30 and until 11:30 p.m., the discount is again offered, and after 11:30 the normal toll applies. These price differentials have caused enough travelers to shift their behavior to end the excessive delays. They were specifically designed to be revenue neutral; that is, the toll authority designed the premium and discount to ensure that its revenues would remain constant and that the congestion fee would simply smooth traffic flow. Little traffic has been diverted to alternate routes, perhaps because they are not built to freeway standards. Hong Kong Hong Kong conducted an extended experiment with electronic road pricing technology in 1983 to 1985. In order to test the accuracy and reliability of the equipment (no congestion fee was charged), over 2,500 vehicles were outfitted with transponders, which were identified and read when-

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion ever they passed over electronic toll points imbedded in the pavement. By all accounts the technology, which was less sophisticated than current systems, performed quite well. Vehicles were recorded for over 99 percent of crossings of the electronic toll points they did make and were not recorded for crossings they did not make (errors were kept below a rate of 1 in 10 million) (Dawson and Catling 1986). When the government allowed neighborhood councils to vote on whether to move to implementing congestion pricing, however, the proposal was soundly defeated. Some authors claim that the public resented the invasion of privacy, but Borins (1988) suggested that the opposition involved more than just the congestion pricing proposal itself. This was the first time the British Governor had allowed the councils to vote on any issue; the explanation of the program and its benefits was clumsily conveyed to the public, and it occurred just at the time the British had agreed to return Hong Kong to China. The neighborhood councils may well have rejected any proposal the government brought forward. Whatever the reasons, the Hong Kong plan was never implemented. Norway The experience of Norwegian cities is worth mentioning because, even though the pricing is not based on congestion, the technology being used in two cities to collect the revenues could be readily adapted to congestion pricing. The cities of Bergen (1986), Oslo (1990), and Trondheim (1991) have put in place “toll rings” around each city. The cities decided to adopt toll collection as a means of raising funds for needed road improvements.3 Toll booths or coin machines were placed at all the entry points around these cities, and a fee was imposed for entry. The fees are fairly low, ranging from U.S.$0.70 to $1.75, because the intent was not to change motorist behavior but to raise funds from the maximum number of users. Regular users can buy subscriptions that offer considerable discounts. Oslo and Trondheim have implemented electronic road pricing.4 A subscriber places a small box on the windshield behind the rear-view 3   Some cities' decisions were influenced by a promise from the national government that it would increase its share of road financing for cities that would use toll financing (Gomez-Ibanez and Small forthcoming). 4   Trondheim's toll pricing is close to congestion pricing since the city does impose a small (U. S.$0.32) premium over the normal toll during peak periods. The increment is not designed to reduce congestion, however, and is therefore not considered to be congestion pricing.

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion mirror. The box contains an electronic “tag” encoded with the motorist's identification. Passage over the entry point is recorded and the user is subsequently billed. Enforcement is handled by taking a video image of the license plates of vehicles that pass through the electronic gate without a tag, but evasion is rare. Although most users are subscribers, non-subscribers and irregular users can pay manually. About 80 percent of the revenue earned in Trondheim is collected electronically, and the toll collection technology in both Oslo and Trondheim costs about 15 percent of the total revenue earned. Public opinion polls ran heavily against toll collection before it was implemented. Motorist opposition has subsequently weakened somewhat, but about 50 percent continue to oppose the toll rings in both Oslo and Trondheim. In Trondheim, when motorists were asked whether they supported the toll ring given the improvements in road and public transportation facilities that it helps fund, only 25 percent said that they opposed it (Gomez-Ibanez and Small forthcoming). Other Nations Congestion pricing is being debated and studied in several Scandinavian and British cities. Political leaders in Stockholm have agreed to a toll ring proposal that would charge an average of U.S.$2.55 (in 1992 prices) to enter the central city or its inner ring road (Gomez-Ibanez and Small forthcoming). The proposal has not yet been adopted in Parliament, however, and many important details remain to be worked out, including whether the price will vary by time of day. Similarly, a proposal is being developed in the Netherlands for the Randstad region that would impose a charge for entering the primary road system during the morning peak. The Randstad is a polycentric metropolitan area of about 5800 km² (2,200 mi²); it includes the nation's largest cities, airport, and port and is home to over 6 million people. An early version of the proposal would have imposed a multiple cordon pricing scheme with 140 collection sites throughout the region. The proposal now in Parliament is less ambitious, but still retains a peak-period increment (Gomez-Ibanez and Small forthcoming). Congestion pricing is being actively considered in London and Cambridge, England. A 3-year, $5-million study is currently under way for London to examine alternative area pricing concepts and study public and political acceptance of the various proposals. The study is considering several pricing schemes, including one that would charge a higher price for operating in the most congested central area of London and a lower price for operating in the less congested area around the core (Gomez-Ibanez and

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion Small forthcoming; May, Vol. 2). The London study is expected to be completed in 1994. Congestion pricing has been studied for London several times in the past, but without leading to action (Button 1982). U.S. Proposals Proposals for congestion pricing are moving forward in the San Francisco Bay Area and in Southern California. In contrast to the hostile reaction to congestion pricing by local business leaders and elected officials 20 years ago, in a few places they are now publicly advocating this scheme. The San Francisco Bay Area proposes to increase the existing $1 toll for using the San Francisco–Oakland Bay Bridge during the peak period by $1 or perhaps $2 (Dittmar, Vol. 2). The proposal was issued jointly by the Bay Area Congestion Pricing Task Force, which includes government, environmental, and business organizations. The intent is to shift some demand on the Bay Bridge to the off peak and to transit; this would reduce congestion and improve air quality. This proposal is the only congestion pricing pilot project that has been authorized under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). On the Riverside Freeway (SR 91) in Southern California, a private operator will impose peak-period fees to allow solo drivers to use 16 km (10 mi) of newly constructed express lanes in the median of the existing highway (see Figure 2-3) (Fielding, Vol. 2). Construction of these lanes began in July 1993. Drivers who choose not to use the toll road can continue to drive on the existing road, which is heavily congested during the peak. Carpools with three or more occupants will be able to use the new lanes without charge. One other private toll road being planned in California, Route 57, will also use congestion pricing (Fielding, Vol. 2). In the San Diego area, it has been proposed that solo drivers pay a toll to use an existing, underused HOV lane in the Interstate 15 corridor north of the city (Duve, Vol. 2). This proposal, along with several similar ones, was not selected by the interagency review panel established to review proposals for congestion pricing pilot projects. Members of the panel were apparently concerned that opening up HOV lanes, even for a price, would weaken the incentives for carpools. There was also concern that the proposal did not constitute congestion pricing because it was not pricing a congested facility, but rather pricing an underused (but restricted-use) facility to ease congestion on an unrestricted (but heavily congested) free route. Regarding the latter concern, the study committee considers the San

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion FIGURE 2-3 Route 91 and Route 57 projects are designed to use electronic congestion pricing. Diego proposal to constitute congestion pricing because the end result is that motorists pay a fee to use these faster lanes during the peak hours. More specifically, it is congestion pricing with a carpool exemption and with an immediately adjacent, parallel free route. The proposal has the advantage of not taking anything away from motorists —instead it provides them with the option of paying for a premium service. The disadvantage with this proposal is that it could weaken a regional strategy to promote ridesharing on the HOV lane. Some motorists who formerly joined carpools in order to save time may elect to drive alone and pay for the time savings. San Diego could not implement this proposal on its own unless it was accepted as a pilot project because under ISTEA only pilot projects are able to introduce congestion tolls on Interstate routes. Parking pricing strategies are another mechanism for imposing a higher fee for travel within or to a congested area. Parking charges do not deal

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CURBING GRIDLOCK: Peak-Period Fees To Relieve Traffic Congestion with through traffic, which in some areas is the most significant source of congestion. Parking charges, however, can be designed to influence the choices of solo drivers. The “cashing out” of employee parking that has been adopted in California law requires employers who lease parking from a third party to provide their employees with the option of taking the cash equivalent of the employee parking benefit (Shoup, Vol. 2). Drawing on case studies of individual companies that changed their parking fees, Shoup estimates that if offered in the greater Los Angeles area, the cash-out option would reduce the number of solo driver trips to work by 20 percent (Shoup, Vol. 2, Table 5). The California law was written to minimize adverse impacts on employers. Those that lease parking from third parties in a large block, and are therefore unable to return a few spaces, are exempt from the parking cash-out requirement until the term of the lease expires. Once the lease has been renewed, the employer must cash out parking to employees who prefer this option. Under this circumstance, the employer who wishes to minimize costs will need to negotiate with the lessor to reduce the number of spaces being leased. The law has another provision that requires cities and counties to reduce the parking requirements in zoning regulations for new and existing structures. This provision is designed to give lessors an incentive to convert land devoted to parking to higher uses. The ways in which the California law is designed to create benefits for employees, employers, and the general public are discussed in detail in Shoup's paper in Volume 2. REFERENCES Borins, S. 1988. Electronic Road Pricing: An Idea Whose Time May Never Come. Transportation Research, Vol. 22A,No. 1, Jan., pp. 37–44. Button, K. 1982. Road Pricing: Some Practical and Economic Considerations for Its Introduction in Britain. Logistics and Transportation Review, Vol. 18, No. 4, pp.353–371. Dawson, H., and I. Catling. 1986. Electronic Road Pricing in Hong Kong. Transportation Research, Vol. 20A, No. 2, pp. 129–134. Gomez-Ibanez, J., and K. Small. Forthcoming. NCHRP Synthesis of Highway Practice: Road Pricing for Congestion Management: A Survey of International Practice.TRB, National Research Council, Washington, D.C. Hau, T. 1992. Congestion Charging Mechanisms: An Evaluation of Current Practice .Policy Research Working Papers. WPS 1071. The World Bank, Washington, D.C. Wohl, M., and C. Hendrickson. 1984. Some Practical Pricing Problems. In Transportation Investment and Pricing Principles, Chap. 13, John Wiley and Sons, New York.