Charging for the Use of Roads

This article appeared in Transportation Quarterly, Vol. 56, No. 3, Summer 2002 (33�36).

Discussion about road charges is often rendered confusing by a lack of accepted standard terminology. Patrick deCorla-Souza's article, "The Long Term Value of Value Pricing" is no exception. He identifies three pricing scenarios - adding peak period tolls on existing toll roads, introducing peak period tolls on existing toll-free highways and providing for peak period tolls on new lanes added to existing highways - and calls them all "value pricing." In fact, only one of them is a true case of value pricing. The other two involve "variable pricing" - a technique widely used throughout the economy to shift demand to low-demand or off-peak periods. What follows is a brief discussion of various transportation pricing concepts that will hopefully clear up some of the confusion surrounding debates about transportation pricing.

Tolls
Tolls are the oldest and politically least controversial form of road charges. They are almost universally accepted as a legitimate means of raising revenue for new transportation facilities. Turnpike tolls have been part of the American scene since colonial days, and toll roads make up as much as 9 percent of all U.S. freeway mileage today. In the last 15 years, 12 new toll facilities have been completed and another 9 are under construction. In Europe, South America and Asia, virtually all new expressways are built as toll facilities, with tolls set high enough to cover interest payments and liquidate bond indebtedness. Electronic tolling has taken the hassle out of toll collection - paying tolls is now no more painful than paying for any other utility. While pockets of opposition to tolls remain, they are likely to assume growing importance if, as feared, gasoline tax revenue fails to keep pace with rising demand and cost of highway construction.

Congestion Pricing
Congestion pricing is a term reserved for fees aimed at restricting the use of automobiles in crowded places. Congestion charges were first proposed (and named "congestion pricing") by Columbia University economist and Nobel Prize winner, the late William Vickrey. Vickrey justified them as a means of assessing motorists the full cost of "externalities" associated with driving in congested areas. The idea of congestion fees as a mechanism for allocating scarce road space was picked up by British transport economists. Renamed "road pricing", the concept was legitimized by the British government through an official 1964 "white paper" commonly known as the Smeed Report. Although road pricing has since been a subject of several other proposals (most recently by London's mayor, Ken Livingstone) the concept continues to meet with political opposition in the United Kingdom. Attempts to introduce congestion pricing in Sweden and the Netherlands have likewise met with public opposition. In the United States, attempts by the federal government to promote congestion pricing in the 1970s and again in the 1990s, have been rebuffed repeatedly. Under a congressionally authorized "Congestion Pricing Pilot Program" enacted in 1991 and re-authorized in 1996, a number of communities carried out "pre-implementation" studies only to conclude that there is not enough political support to proceed with implementation.

Why are congestion fees unpopular while tolls are readily accepted? The explanation seems to lie in the different way people perceive the two kinds of charges. The public accepts tolls because it views them as a means of financing construction and maintenance of new roads. Congestion charges, on the other hand, are perceived as punitive in nature and motivated by the desire to restrict freedom of movement. Charging motorists money to deter driving in peak periods or in certain places seems unreasonable because most people have no choice but to drive in rush hours and in congested areas such as central London. Martin Wachs, chairman of a TRB Committee on Congestion Pricing, summed up the lack of a political constituency for congestion pricing in a celebrated quote: "Except for professors of transportation economics - who hardly constitute a potent political force - I can think of few interest groups that would vigorously fight for the concept."

Value Pricing
A third, and most recent use of road charges has been as payment for premium level service. Known as "value pricing," the concept was first introduced by the operators of a privately funded toll facility, the SR 91 Express Lanes, built in the median of an existing freeway in Orange County, CA. The facility was marketed to the public as offering extra value in the form of providing a faster, safer and more reliable trip in return for a fee (hence "value pricing")." Despite early attempts by some critics to characterize value pricing as inequitable ("Lexus lanes"), the scheme has been well received and is highly popular among time-pressed travelers looking for an alternative to slow and unreliable travel in congested general-purpose lanes.

Paying for the use of lanes (or roads) that offer a premium level of service may become an accepted practice in the years ahead. As existing urban roads become ever more congested, and as highway travel becomes increasingly slower and less reliable, there will be many individuals and businesses willing to pay for the privilege of traveling in congestion-free lanes. It is even conceivable that, eventually, there will emerge a dual network of highways with differential levels of service. The "old" system, built in the 20th century will remain free, but will become increasingly congested and unreliable. Newly built roads in heavily traveled corridors will offer a faster and more reliable travel alternative for a fee. Such a dual system would benefit both travelers who need a faster way to reach their destinations, as well as users of the "old" system which would become less congested as some motorists switched to the toll system.

Variable or Peak Period Pricing
The technique of variable pricing (also known as peak period pricing or differential pricing) involves charging a higher price during periods of peak demand (or a lower price when demand is slack) - a practice widely used throughout the economy to spread demand more evenly over time or to shift excess demand to off-peak periods. Variable pricing is commonly used in controlling demand for power, telephone usage, vacation travel, hotel rooms, recreation, and other activities that have high peaking characteristics. Variable pricing can be applied to tolls, congestion pricing and value pricing alike. For example, authorities have recently introduced variable tolls on the New Jersey Turnpike, an existing toll road, charging higher tolls during rush hours. French toll road authorities have been using variable tolls to shift weekend travel demand fro`m peak periods to "shoulder" periods. Singapore uses variable fees with its congestion pricing scheme aimed to discourage driving on congested roads during peak periods. And variable fees are also used on the value-priced SR91 and I-15 Express Lanes in Southern California. However, tolls are often applied without the use of variable pricing. Congestion fees and value pricing could likewise involve fixed rather than variable fees.

Unfortunately, the terms "congestion pricing," "value pricing" and "variable pricing" are often used interchangeably. A preferred way would be to use the term "variable pricing" to describe the value-neutral management technique to spread demand more evenly over time; and to limit the terms "congestion pricing" and "value pricing" to describe pricing policies with specific aims: to restrict motor vehicle movement in the former case, and to offer congestion-free travel in the latter case.

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