The Hidden Cost of 'Road Fares'

Traffic jams aren’t fun for anyone. Driver stuck in them lose time, money, and peace of mind. And for society as a whole, congestion translates to economic and health costs. One oft-hailed way to tackle this problem is congestion pricing, or “road fares” (as CityLab readers and transit wonks prefer to call it)—charges levied for using busy city throughways at certain times. This policy has seen success in cities around the world, and academics swear that it’s one of the most effective solutions out there. But congestion pricing has its limits, and as a new study published in the Journal of Urban Economics finds, some less-than-desirable effects.

The truth is, congestion just isn’t the boogeyman it’s often made out to be. Yes, it leads to some negative consequences (called “negative externalities” in economics jargon), but it’s also an indicator of dense, healthy economic activity (“agglomeration externalities”). To find out how these forces weigh against each other, Jeffrey Brinkman, senior economist at the Federal Reserve Bank of Philadelphia, developed a spatial model of a U.S. city that accounts for how residential and commercial density, land use, wages, and commute times change with distance from a central business district. Using this model, he simulated what would happen if a road-fare equivalent to the social cost of traffic jams was implemented. Here’s his main finding, via his paper: