Zero Price Parking and Nickel Beer

There are many scarce resources that urbanites enjoy at a “zero price” (ZP) besides curbside parking. Sidewalks come to mind, and they, too, are subject to congestion problems owing to the absence of clear property rights. But the congestion externalities from ZP parking are probably among the most serious: extended commuting times, pollution from slow-moving vehicles, etc.

I like Professor Shoup’s approach to these problems, and his proposal to institute “performance pricing” (PP) for curbside parking spaces and to channel those revenues to the owners of properties that abut them is sound. I also think it’s a good idea to get rid of off-street parking (OSP) requirements, which may to some degree encourage in-fill and new construction, lower the cost of land-use conversions, increase the variety and quantity of construction, and create a richer and denser urban environment. I do have some criticisms, which I will enumerate at the end.

His analysis made me think of “Nickel Beer Night” that some bars offer. The analogy isn’t perfect because bars are owned by individuals, whereas of course the neighborhoods in which curbside parking takes place generally aren’t—at least not yet. (More on that later.) Still, it was helpful for me to frame it this way.

The Beer Mandate

A bar owner may find it profitable on some nights to charge a nickel for a glass of beer. While she bears the cost of lost revenue from what she could have earned selling at regular prices, in her estimation it’s more than made up for by the increase in sales of burgers and fries, and by the reputation as a lively hang out that large crowds will bring her. Her customers of course bear the cost of longer waits, overcrowding, and noise. If she’s being entrepreneurial she will take such costs into account by monitoring whether she loses customers or sees a drop in her bottom line. If it’s profitable she’ll continue; but if it’s not, she won’t.

Let’s suppose she doesn’t think it’s profitable, but the government orders her to charge a nickel per glass anyway. Unless the government happens to be a better entrepreneur than the owner, her customers will complain more about overcrowding. To address these complaints the government now mandates a minimum upgrade in the food served—say, from burgers to caviar—for which she may charge the market price. But her customers would rather pay a higher price for beer, with less crowding, and so would she.

The owner and her customers would be a little happier if, keeping the nickel beer policy in place, the government left any food upgrade up to her; perhaps it would be steak instead of caviar. Or, keeping the caviar mandate in place, they would be a little happier if she were permitted to charge the market price for beer, reducing overcrowding. Of course, the owner and her customers would be best-off if neither nickel beer nor caviar were forced down their throats.

Obviously, ZP parking is like nickel beer. OSP is the caviar mandate, and so we are brought to Professor Shoup’s proposal: institute performance pricing (PP) for curbside parking and remove OSP minimums. Potentially everyone would be better off.

In real life, public authorities tend to respond to the consequences of their prior interventions with even more interventions. So, instead of removing the nickel-beer and caviar mandates, it’s likely they’ll order the bar to charge an entry fee gauged to the density of the crowd. Similarly, cities like London today charge drivers “congestion prices” for entering downtown at certain hours; New York City is considering this as well. It’s a nice cash cow. But it would be superfluous if performance pricing for street parking effectively reduced traffic congestion. Not only would it be far less costly than adding freeways or mass transit, it would probably to be less subject to rent-seeking, and much less interventionist than piling congestion pricing onto ZP parking and OSP minimums.

Privatizing Curbside Parking?

Professor Shoup recommends directing revenues from PP parking spaces back to the property owners these spaces abut. He argues that this will help overcome political resistance to his proposal arising from “groupthink” and Prisoners’ Dilemma problems (i.e., all may agree that PP’s a worthy idea but no one wants to lose his ZP parking). In his book The High Cost of Free Parking he recommends that these funds be used for sidewalk and road maintenance. This makes sense to me as far as it goes.

Devolving the pricing decision and revenues back to the relevant owners conforms to the sound principle of bringing collective-action decisions to the most local level of governance practicable.[1] What Professor Shoup is proposing, in other words, is consistent with a movement toward the privatization of urban land and land-use decisions.

A fully free-market solution to the problem of traffic congestion, and the one that stands the best chance of achieving the collective benefits that Professor Shoup spells out, would entail turning property rights in streets over to private owners, who may be individuals or private neighborhood associations. These rights might also be made transferable, for example to investors, management companies, or even shopping malls. So in this light, his solution is really quasi-free market. But it is an important, and presently more politically feasible, step in the right direction. (I have more to say about this in point 6, below.)

Areas for Improvement

The following are roughly in order of increasing importance.

  1. Professor Shoup could be more explicit in identifying the two distinct sides of the cost of ZP parking. On the one hand, there is the cost to the driver in the form of longer commutes and the like, and on the other there is the cost to the property owner, in the form of lost rents. This would also make it clearer that such rents tend to go to drivers with the lowest time cost instead of (a) the property owners and (b) drivers who attach a higher marginal value to parking but who can’t find a space.
  2. Minimum parking requirements, as bad as they are, are NOT “our most disastrous experiment ever in social engineering.” It’s easy to think of quite a few other social-engineering experiments here that have been at least as bad if not orders of magnitude worse: rent control, The Great Society, nation building, slavery.
  3. He claims his proposal will reduce of imports, such as cars, and raise production of domestic goods. That may well be, but from the economic point of view, of course, it makes no difference whatever where the products that satisfy domestic consumer demand come from. There’s nothing wrong with imports, per se. The demand for car imports and such may be artificially boosted by ZP pricing and OSP minimums, but the problem lies with the policies not the imports.
  4. One of the things I wanted to show in my bar example is that ZP parking (nickel beer) and OSP minimums (caviar), while certainly related in the sense that the former probably did result in the latter, are quite separable conceptually and policy-wise. By bundling them together so tightly, he gives the impression that the two must always go together. But putting PP parking in place need not entail removing OSP minimums, although the latter’s raison d’être would disappear. And likewise getting rid of OSP minimums is possible, and certainly much more politically doable, than trying to implement PP parking. (And especially desirable if it is indeed “our most disastrous experiment ever in social engineering”!)
  5. As I argued above, PP parking does not quite constitute a “free market in parking” as Professor Shoup asserts, but is rather a quasi-free-market solution. In his Chapter 17 of The High Cost of Free Parking, he urges that the revenues generated by parking fees channeled back to the respective block associations be used for sidewalk and street repair. If I’m interpreting him correctly here, then why can’t these groups be permitted to spend the money on whatever they see fit? For example, hiring private security or throwing a block party may be more important in some situations than sidewalk repair.
  6. Also, while I think his proposal is a big step in the direction of privatizing urban space, a more complete privatization of streets and curbs (in some or all areas of the city) would open the way to at least one other market-based solution to urban immobility: the private provision of competitive intra-city mass transit.

    Fixed-rail transport, the darling of local politicians seemingly everywhere, is manifestly grossly inefficient. But as Daniel Klein and other have pointed out,[2] the problem with competition among private buses and jitneys (i.e., multi-passenger vehicles that provide service more regular than taxis but with more flexible routes than busses) has been how to prevent interlopers from swooping in and taking customers from a particular company just before its bus is scheduled to arrive. Privatizing curb rights, by clearly defining a company’s property rights, makes it more feasible to enforce those rights against interlopers. It would be a necessary step in establishing beneficial competition among rival companies.

Apart from some minor reservations, then, I like Professor Shoup’s way of handling congestion externalities. I like it much more than congestion pricing, which attempts to mitigate traffic problems that are themselves largely the result of prior interventions with even more intervention and a reduction in privacy. His solution goes against this pervasive political trend. It’s more finely tuned and addresses more directly the source of these problems.

Notes

[1] This is something that Peter Gordon and I discuss in “Power to the Neighborhoods: The Devolution of Authority in Post-Katrina New Orleans,” Mercatus Policy Series, Policy Comment No. 12 (August 2007).

[2] Dan Klein, Adrian T. Moore, and Binyam Reja, “Curb Rights: Eliciting Competition and Entrepreneurship in Urban Transit,” The Independent Review (Summer 1997).

Also from This Issue

Lead Essay

  • Free Parking or Free Markets by Donald Shoup

    America’s supposed love affair with the automobile is more like an arranged marriage, says Donald Shoup. Car and parking policies make cities and suburbs less livable for human beings. He recommends three reforms: First, adjust parking meter prices according to supply and demand. Second, return parking revenue to local communities for civic improvement. And third, remove minimum parking requirements that lock up useful land, lengthen commute times, and contribute to urban and suburban sprawl. These policies, he argues, are good for the community, good for the environment, and represent sound, market-based urban planning.

    America’s supposed love affair with the automobile is more like an arranged marriage, says Donald Shoup. Car and parking policies make cities and suburbs less livable for human beings. He recommends three reforms: First, adjust parking meter prices according to supply and demand. Second, return parking revenue to local communities for civic improvement. And third, remove minimum parking requirements that lock up useful land, lengthen commute times, and contribute to urban and suburban sprawl. These policies, he argues, are good for the community, good for the environment, and represent sound, market-based urban planning.

Response Essays

  • Using Markets to Enhance Mobility by Randal O'Toole

    Randal O’Toole argues that the automobile brings mobility to the common people in a way they could never have otherwise. As such, it is a great social good, and those who criticize urban sprawl are neglecting the many good things about our highly mobile contemporary lifestyle—among them better housing, higher labor productivity, and better access to consumer goods. These may well be worth the commute.

    Some parking subsidies, such as minimum parking requirements and cheap on-street parking, should indeed be removed. But using parking fees to subsidize local public works projects simply redistributes the automobile subsidy to local landowners. O’Toole proposes to privatize parking; private entities would then use the money they collected to build additional parking in response to consumer demand.

  • Efficient Road Pricing for Stationary Vehicles: The Case for Curb Parking Charges by Clifford Winston

    Clifford Winston offers a variety of suggestions for further research and implementation of optimal parking charges. What are the current shares of various types of parking capacity? How much of it actually is free right now? How would congestion fees on roads interact with efforts to price parking efficiently? What can new information technologies offer us in this area? Although Winston is clearly sympathetic to Shoup’s thesis, his essay points to the magnitude of work yet to be done.

The Conversation