Road pricing or congestion tolls are based on the principle that there is an opportunity cost of scarce highway capacity because a motorist’s use of that capacity delays other vehicles on the road, especially during peak travel periods of the day. An efficient congestion toll applied to all drivers on a congested road bridges the gap between the average private cost of drivers’ trips and the marginal social cost of their trips by making them pay for their contribution to the delays imposed on other drivers; hence, scarce road capacity is used efficiently by drivers whose marginal benefit of driving equals or exceeds the marginal social cost of their trips.
Donald Shoup extends the idea of pricing scarce highway capacity to pricing scarce parking capacity, which is provided free to motorists on certain streets as curb parking. The idea is a good one and I will outline how the case for it can be strengthened by drawing on economists’ efforts to build the case for efficient road pricing.
Motivating the Problem and Developing a Conceptual Framework
Anyone who reads a daily newspaper is probably familiar with the Texas Transportation Institute’s Urban Mobility Report, which every year generates a front-page story about the annual traffic delays in U.S. metropolitan areas and the annual cost of congestion, accounting for travel delays and wasted fuel. That figure is now approaching $100 billion. Professor Shoup’s paper provides some anecdotal evidence about the delays incurred in finding parking spaces, but it would be useful to have a broader overview of the problem. What is the share of parking capacity in metropolitan areas, either an average or a summary of the top 20 cities, which consists of curb parking, public lots, and private lots? Does curb parking constitute a large share of parking capacity? How much of that capacity is available at no charge or very low prices? Basic stylized facts should indicate that a scarce resource is being underpriced, resulting in excess demand for parking spaces and significant social costs in additional congestion and search costs, which could be in the billions of dollars.
The notion of performance pricing that Professor Shoup mentions can be made more precise. Efficient prices cause motorists to take account of the social costs of using scarce curb parking places. Similar to congestion pricing, optimal parking charges would result in curb parking being used by motorists whose marginal benefit of parking exceeds or is equal to the marginal social cost of parking. Optimal curb parking prices should be determined using this framework and the effects of those prices on motorists’ and social welfare should then be assessed empirically.
Professor Shoup does not report empirical estimates of the welfare effects of efficient parking charges, and I was unable to find any credible studies. Developing such evidence for a base case and various extensions is an important area of future research to help motivate the issue for policymakers and to guide analysts’ thinking about the political obstacles to setting parking charges in formerly free parking spots.
Base Case. A base case analysis would establish some preliminary magnitudes of the benefits and costs of efficient curb parking prices. Motorists would incur out-of-pocket costs from higher parking charges. Those costs would be offset by the time savings from having to search for a parking place and the delay savings to other motorists who are driving in the area. The local government would gain from parking revenues and the net welfare effects would be positive. But the specific magnitudes would tell us whether the welfare gain is large and how much redistribution is involved.
It would also be useful to examine how the base case results are affected by the introduction of efficient road pricing, which could be set on local streets using modern technology and would mitigate much of the congestion delays incurred by motorists. Is there much to be gained from parking charges once traffic congestion is efficiently priced? Would parking and congestion pricing complement each other and generate substantial gains? Similarly, would the introduction of new communications technology that makes it much easier for motorists to locate available parking places, thereby reducing search costs and congestion, accomplish much of pricing’s efficiency gains? Would such technology if accompanied by pricing, as envisioned to some extent in San Francisco’s SFpark experiment, generate even larger gains?
Extensions. The base case employs a simple framework and does not consider other effects of parking charges, which may produce additional welfare gains. Parking charges could have a positive effect on the value of houses in nearby residential areas and on the profitability of certain businesses by reducing congestion and improving accessibility. Changes in home prices may even change land use and residential densities. Langer and Winston (2008) found that the gains from congestion pricing substantially increased from changes in land use that led to a reduction in sprawl and greater density.
Professor Shoup makes an important argument that land use would significantly improve if cities abolished minimum parking requirements that force certain office buildings and business establishments to allocate large amounts of land for parking, thus diverting that land from more productive uses. Efficient parking charges would complement that policy by making the most efficient use of the land—curb space—that is used for parking.
Instituting efficient parking charges would result in winners and losers, and it is important for proponents of the policy to accentuate its benefits and explore ways to soften the losses. As noted, parking charges would generate substantial revenues to the local government. Professor Shoup suggests that those funds should be used to pay for local services, but during a time of severe budgetary pressures on all levels of government it might be more effective politically to stress that those funds could forestall cutbacks in public services and layoffs of public sector workers.
The key to ameliorating motorists with low values of time, who would clearly lose from higher parking charges, is to differentiate charges so those motorists have the option to pay low prices to park. Note the political strength of High Occupancy Toll (HOT) lanes; these set congestion tolls on part of the highway, so that motorists have the option to use unpriced lanes. Parking spaces with lower charges would be further away from the most heavily traveled streets and commercial areas but still within reasonable walking distance to stores and public venues.
The big white elephant in the discussion is that efficient parking charges represent a fundamental reform of government policy, while there is little evidence that government actually reforms its policies to generate efficiency improvements (Winston 2006, for example). Indeed, the failure to price curb parking is only one of several inefficiencies in road infrastructure policy that has not been corrected. Congestion pricing on HOT lanes is a recent example of an efficient pricing reform; but HOT lanes account for a tiny fraction of road travel in the country, and the failure to price all lanes generates inefficiencies. Moreover, even if local governments implemented parking charges, concerns exist that the charges would not be efficient—or nearly efficient—and that a nontrivial portion of the revenues would be used for inefficient purposes.
An alternative perspective is that the road system, including local streets that offer curb parking, should be privatized because private operators would have incentives to manage and operate the system efficiently and would make optimal use of existing road capacity. Of course, there are concerns that privatization would result in monopolies that charge excessive prices and provide poor service. I do not have the space to take up the privatization debate here, but I can report that Winston and Yan (2011) provide evidence that highway privatization can benefit motorists if prices and capacities are determined in a bargaining framework and if they reflect motorists’ heterogeneous preferences for highway services.
Similarly, motorists may have varying preferences for curb parking—some motorists may be willing to pay a premium for a space to eliminate search costs and be close to their destinations; others may prefer to pay less to park in less convenient spots. Public and private lots offer such differentiated services to some extent but their pricing schedule tends to favor long stays. Charges for curb parking that vary appropriately by time of day and location may expand the range of price and parking options for motorists and improve their welfare by catering to their preferences.
Langer, Ashley and Clifford Winston. 2008. “Toward a Comprehensive Assessment of Road Pricing Accounting for Land Use,” Brookings-Wharton Papers on Urban Affairs, pp. 127-175.
Winston, Clifford. 2006. Government Failure Versus Market Failure, Brookings Institution, Washington, DC.
Winston, Clifford and Jia Yan. 2011. “Can Privatization of U.S. Highways Improve Motorists’ Welfare?,” Journal of Public Economics, forthcoming.