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III. Applications to Congestion
The logic of efficient environmental protection applies with few changes to issues of congestion. Parking meters are simple example of the application of land value taxation to solving a problem of congestion. If there is a shortage of parking places (at a zero price) then the introduction of parking meters (charging rent for the use of land) can relieve the shortage. Ideally, the price of a parking meter should vary by time of day to reflect variations in the demand for parking places. The ideal fee would equate supply and demand at each time of day, with lanes of streets devoted to parking only where the revenue generated by the parking fees exceeds the value of the additional lane in speeding traffic. Perhaps in a few years we will have parking meters with prices that vary by time of day. We certainly have the technology. In the meantime, we get by with meters that charge a single price throughout the part of the day when demand is greatest.
Charging rent for parking is only a small step from charging rent for cars that are moving on city streets. The more cars there are on the streets, the slower everyone goes. The marginal cost of having one more car on the streets is the value of the extra travel time that everyone else endures because of the one additional car. In many places, the congestion cost of traffic is less than the cost of administering a system of congestion fees. But this is not the case everywhere. William Vickrey used to say that his estimate of the cost in additional delays of having one more car in midtown Manhattan in the middle of the day was about $20,000 per hour. He would go on to say that this did not imply that people should be charged $20,000 per hour for using the streets of midtown Manhattan. He had estimated marginal cost at the present level of usage. The efficient charge -- perhaps $25 per hour -- would reduce use of the streets so greatly that the marginal congestion cost of street usage would equal the price. Efficient congestion prices for using the streets of Manhattan (or Boston or other large cities) would not merely charge for ordinary usage but would also entail special charges for anyone who double-parked or parked in some other illegal way that created congestion. If we could keep track of the movements of vehicles, then for any vehicle that stood still ahead of backed-up vehicles that wanted to move, there would be a charge for the resulting congestion cost, which would be quite high. Companies making deliveries to downtown areas might decide that it was far better to make deliveries at night than to tie up the streets in the day.
Congestion charges also apply to bottlenecks such as bridges and tunnels. Whenever such a facility has cars backed up seeking to use it, efficiency is improved by applying a toll that reduces demand to capacity. The same output is produced, revenue is generated, and the waste of queuing is avoided.
The efficiency of congestion pricing would also apply to such public facilities as airports and parks. When airlines want to have more take-offs and landings than an airport can accommodate, it is efficient and just to allocate take-off and landing slots by price. Unfortunately, Congress, at the behest of airlines, has prohibited airports from doing this, requiring them instead to allocate take-off and landing slots by non-price means.
In Central Park in New York, there are fewer baseball fields than are demanded at a zero price. There is a private company that has the right and responsibility to organize the leagues that are allowed to use the fields. This company is able to charge fees that implicitly include the scarcity value of the fields. A recognition that the parks are the common heritage of everyone in the city would lead instead to a charge for using the ball fields that equated supply and demand.
There are also applications of
congestion prices at an
international level. For example, there may be congestion in
geosynchronous orbits for satellites. If this should occur, then
the just thing to do is to charge market-clearing rents for
geo-synchronous orbits and share the proceeds among all nations in
proportion to their populations. ... Read
the entire article
Fred Foldvary: Geo-Rent: A Plea to Public Economists
Public goods are usually defined as both nonrival and nonexcludable. The public finance literature often alleges “market failure” for goods such as streets, sewers, parks, security, and fire fighting. Once a collective good is provided, it is not practical or desirable to exclude persons. For example, even if one agrees that people can be excluded from a city park, it would not be desirable to have walls and gates to keep out the free riders.
The “free rider” doctrine, however, tends to treat public goods as though they have no location in space and time. Somewhere, out in the ether, there is a public good and some users who cannot be made to pay for benefits. But the benefits of most real-world public goods fall within an ambit that is territorial. Accordingly, those benefits become capitalized into the market price of land within that ambit. Those using the civic services are included by proximity; it is costly for far-away users to visit a neighborhood park. Residents, businesses, and customers willingly pay more because they benefit from the territorial goods. Most users therefore do make payments that are proportional to such amenities, since they must pay to use land. But the payments are made to the landowner. The market-failure doctrine for public goods is turned on its head: Users do tend to pay in an indirect sense, and government policy creates the free riding of the landowners, at the expense of the extraneous taxpayers. Rather than correcting any deficiency of markets, policy is iatrogenic, that is, illness caused by the doctor. Streets, parks, and security suffer from free riding because the doctor made it that way. This insight is rarely found in mainstream sources. ...
The value of a city park diminishes with the distance from the park. Therefore, ceteris paribus, those closest to the park will have a higher geo-rent. The most efficient way to finance the community is from the geo-rent, not by equal dues payments. The Tiebout model will reflect the territorial ambit of goods only when land and location are taken into account. ... Read the entire article
Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...
Without coercion or remote planning, the PTS improves our settlement patterns. Regulations and zoning, some assume, might be vitiated or obviated, become obsolete. Instead, the PTS makes it easier for regulations and zoning to do their job. Since the land tax lowers land price, buying land for parks and reserves is more easily afforded. The loss in revenue from removing the newly public lands from the tax rolls would be offset somewhat by the corresponding rise in value of sites near the protected open space. Creating green spaces raises the density of already developed land, and thus its value. Furthermore, land dues reduce the profit from land development, making it a less attractive investment, and land use decisions of less economic consequence. After a while, people with deep pockets would turn to investments that, post-shift, would be untaxed. Reserving land for recreational or natural uses becomes less contentious; people could more easily determine an optimum proportion of green space to developed space. ...
A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper