The Value of Pricing

S E E K I N G WAY S to ease highway financing and alleviate traffic congestion, policy makers have put toll roads on the national agenda. The public is skeptical of the idea, to say the least. So the federal government has been sponsoring demonstration p rojects, both to gain practical experience and to increase public familiarity with ro a d - p r i c i n g concepts and the ways they work. Although most of the demonstrations are merely studies, two are currently operating on real roads in California. They show that the hard w a re and software work well, that transac- tions and enforcement are manageable, and that drivers easily adjust to pricing. One project, the SR91 express lanes in Orange County, is a privately financed ten-mile roadway that parallels the Riverside Freeway (SR91), a notorious bottleneck. Drivers using the new roadway pay electronically according to a fee schedule that varies by time of day and day of week. Three-person carpools use The Value of Value Pricing the lanes at a discount. When the new lanes opened, typical peak-hour delays on the original lanes on this ten-mile section fell from over thirty minutes to less than ten minutes. The second demonstration p roject, located on an eight-mile section of Interstate 15 (I-15) just n o rth of San Diego, applies a more radical pricing concept. The carpool BY KENNETH A. SMALL lanes there were underused, leav- ing a lot of concrete unoccupied. Solo drivers can now buy their way into this spare capacity, at a price that might change at any moment and that is set to maintain free-flow speeds in the fast lanes. This so-called “dynamic pricing” means that users do not know the exact price until just before they make the lane choice. Each of these projects is attractive because of the way they use pricing. The SR91 expre s s lanes show that the private sector can finance a needed road by charging tolls. It’s too early to know how successful it will prove to be for its investors, but it has produced none of the close brushes with default that have plagued some other toll roads. The original lanes are still f ree of charge and are much less congested than before; meanwhile, many people voluntarily pay up to $4.25 for better service on the express lanes. On I-15, similarly, there seem to be no losers: more people have the express-lane option, it is voluntary, and it removes some traff i c f rom the free lanes. These indications of success are interesting, but they say more about how capacity can be provided than about the nature of road p r i c i n g. To evaluate the projects as pricing demon- strations, we need to ask somewhat diff e rent questions, such as: what are the advantages and disadvantages of using time-varying prices on roads? ➢ K e n n e t h S m a l l i s p r o f e s s o r o f E c o n o m i c s a n d S o c i a l S c i e nc e a t t h e U n i v e r s i t y o f California, I rvine (ksmall@uci.edu) A C C E S S NUMBER 18, SPRING 2001