This article appeared in Transportation Quarterly,
Vol. 56, No. 3, Summer 2002 (3336).
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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