Module 7.6 Externalities from Driving Lecture

Negative Externalities of Driving

• Definition: Negative externalities occur when the actions of individuals have adverse effects on others that are not reflected in the costs borne by those individuals.

Costs of Driving

• Personal Costs:

  • Gasoline expenses.

  • Wear and tear on the vehicle.

  • Risk of accidents.

  • Time spent driving.

• Comparing Benefits vs. Costs:

  • Drivers assess the benefits of reaching their destination against the personal costs of driving.

Externalities Imposed by Drivers

• Types of Externalities:

  • Emissions and pollution.

  • Wear and tear on roads.

  • Accidents impacting other road users.

  • Congestion and traffic jams.

• Lack of Consideration for Others:

  • Drivers often do not account for the costs they impose on others, such as slowing down traffic or causing accidents.

Government Policies to Address Externalities

• Command and Control Policies:

  • Corporate Average Fuel Economy (CAFE) standards regulate the average fuel efficiency of new cars, leading to gradual changes in the vehicle population.

  • These measures do not significantly alter consumer preferences for vehicle types (e.g., preference for SUVs over smaller cars).

Taxation Policies

• Vehicle Use Fees:

  • Annual taxes based on car weight, engine size, emissions, or value.

  • Aim to internalize externalities but may not effectively change driving behavior.

• Gasoline Taxes:

  • Adjust based on fuel efficiency and miles driven; incentivizes lower fuel consumption.

  • Better addresses the issues of emissions than vehicle use fees by accounting for usage.

Traffic Congestion Costs

• Economic Impact:

  • The cost of traffic congestion in the U.S. is estimated at nearly $150 billion per year.

  • This translates to about $500 for every individual, with more pronounced effects in congested urban areas.

  • Increased transportation costs affect goods and services in congested areas.

Solutions for Congestion

• Congestion Pricing:

  • Charges drivers based on the level of demand at different times, aiming to smooth traffic flow and reduce congestion.

  • Higher charges for peak times encourage time-sensitive drivers to find alternative options.

• Pay-As-You-Drive Policies:

  • Suggested for more comprehensive and real-time congestion management.

  • Technology advancements can facilitate monitoring of driving habits, although privacy concerns pose challenges.

Behavioral Adjustments in Traffic Management

• Flexible Driving Patterns:

  • Many drivers are not commuters; studies show flexibility in driving times can significantly reduce congestion.

  • Awareness of alternate travel modes (e.g., carpooling, mass transit) can lead to better traffic conditions.

• Emphasizing Price Signals:

  • Properly assigning costs to congestion through pricing can lead to more efficient road usage, fewer accidents, and improved travel times for all.