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Getting out of a jam

By Andrew Leigh - posted Tuesday, 19 June 2007

In 19th century Britain, the law required all steam cars to be preceded by an attendant carrying a red flag. In cities, cars were not permitted to drive faster than 6km/h. In 21st century Australia, convention requires that every peak hour driver in Australia must have steam coming out their ears, and be preceded by an equally red-faced driver. In cities like Sydney, this ensures that peak hour speeds average 12km/h.

Congestion costs are a classic example of what economists call a “negative externality” (or what your grandmother might have called “just plain selfishness”). In deciding whether to drive or take the train, I consider only on my own costs: fares, fuel, tyres and time. But I ignore the impact that my decision to drive has on you and everyone else on the roads.

In his book Gridlock, Ben Elton described traffic jams as the experience of being “choked on carbon monoxide and strangled with a pair of fluffy dice”. But they have a price tag too. According to the Bureau of Transport and Regional Economics (PDF 3.17MB), the economic cost of congestion is about $9 billion a year, most of which comes from wasted work hours and increased air pollution. By 2020, the BTRE projected, this cost will have doubled.


A natural solution is to force drivers to “internalise” the negative externality, by raising the price of driving into busy areas. Just as “sin taxes” on alcohol, tobacco and gambling recognise the potential harm that can be done to the rest of us, so a congestion fee is society’s way of making drivers take account of other road users.

Recognising the potential of congestion fees, London and Singapore now charge drivers a fee to enter the city during peak times. In April, New York has announced a plan to charge drivers US$8 to enter the southern half of Manhattan. Following successful trials last year, Stockholm will implement a congestion charge in July.

What is notable about these examples is that they come from across the political spectrum. In London, the chief proponent for the congestion fee was Mayor Ken Livingstone (known as “Red Ken”). In New York, Republican mayor Michael Bloomberg is backing the charge. Congestion fees are a commonsense reform, not an ideological one.

Moreover, contrary to the fears that congestion fees would hit low-income households hardest, modelling by the Institute for Fiscal Studies (PDF 46.7KB) suggests that the effects are evenly spread. While the rich can more easily afford to pay London’s £8 congestion fee, affluent Londoners also drive more often. Once commuting frequency is taken into account, congestion fees end up being mildly progressive, meaning that the rich spent a greater share of their income on congestion fees than the poor.

In Australia, the use of public-private partnerships to build new motorways has led to a proliferation of toll-roads. Yet for the most part, those fees are not designed to reduce congestion. Busy old streets in the CBD are free. Quiet new toll-roads in the outer suburbs are pay-per-use. While a congestion fee should be higher in peak hour, Melbourne’s City Link and the Sydney Cross City Tunnel cost exactly the same whether you’re using them at 5pm or midnight.

With many cars now equipped with e-tags, Australia has the technology to get congestion charges right. An ideal system would charge commuters a fee to enter the city centre on weekdays. But simple changes could help immediately. For example, why not replace the $3 Sydney Harbour Bridge toll with a charge of $5 during weekdays, and $2 on nights and weekends?


Despite an outcry at the time it was implemented, British policymakers now generally recognise that the London congestion fee has been a success. Traffic volumes are down. Public transport usage is up. And average road speeds, which had fallen to jogging pace, are now increasing again.

With six out of seven Australian commuters travelling by car, a city congestion fee might encourage a few more people to take the bus instead. It might also encourage people to think about sharing a car, rather than the present situation in which 90 per cent of drivers travel solo to and from work. (Harvard political scientist Robert Putnam argues that individualistic car commuting is one of the factors that has led to the breakdown of social capital in America.)

As the Soviet Union eventually realised, queues help no-one. Time spent waiting in a traffic jam is neither devoted to productive activities, nor enjoyed with family and friends. With the typical worker spending the equivalent of seven days a year sitting in their car, coming up with clever ways to beat gridlock should be a high priority. A modest congestion fee might just be the solution that our lungs - and kids - have been looking for.

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First published in the Australian Financial Review on June 14, 2007.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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