Traffic congestion continues to be a serious problem in major cities around the world. Congestion results not only in time lost while sitting in traffic jams. It also constitutes a disruption to company supply chains and the general flow of commerce. Idling vehicles contribute as well to air pollution.
Congestion thus reduces the quality of life, but government efforts to limit it have been, for the most part, woefully inadequate. Indeed, in many metropolitan areas people take for granted the fact that helicopters will patrol thoroughfares in order to inform drivers about locations where traffic problems are particularly severe.
Since 1975 Singapore has priced vehicle entry into its central business district (CBD). The main purpose of this pricing has been to manage traffic volumes rather than the collection of revenue. Prices have been adjusted as traffic conditions have changed.
Tolls for roads, bridges, and highways have a long history around the world, but the tolls collected have been used mostly to help pay for transportation infrastructure. Charges for "hot lanes" on highways in Southern California, which help to smooth out traffic flows, have been the exception and not the rule.
The city of London introduced congestion pricing in part of its downtown area in 2003. The pricing has succeeded in reducing traffic volumes by about 15 percent, and average traffic speeds have increased about 9.2 percent (The Economist, 9 June 2005). It is possible that road pricing will be instituted on a nationwide basis in the years ahead.
The idea of road charges remains politically contentious, with prominent politicians vowing to stop them. The Dutch government made elaborate plans for more than 10 years to introduce widespread road pricing, but when the time came to implement the proposal in 2001, politicians could not summon the will to do so.
In Singapore, by contrast, there is no doubt about the long-term survival of pricing as a means to control traffic volumes. Such pricing has already existed for three decades. Much can be learned from Singapore's experience.
It should be emphasized that road pricing is viewed in Singapore as only one part of an eclectic approach to transportation management, and even in Singapore--where one political party has dominated the government--there are some political barriers to effective pricing. The introduction of superior technology for toll collection is also a sensitive matter. Nevertheless, Singapore has clearly been road pricing's world leader.
The Economies of Road Pricing
Elementary economies teaches us that an excess demand for a good or service can be eliminated if its price is raised sufficiently high. The demand for roadway use is no exception. Chronic traffic congestion indicates that there is an excess demand for roadway use, but in most cases, there is no explicit price charged for driving on streets and highways.
Gasoline taxes may mildly discourage driving, but they do not charge vehicles according to time and place. Roadways may be mostly free of vehicles at some times and places, but they may be extremely congested at other times and locations. Moreover, traffic patterns may change over the years. Road pricing offers the possibility of targeting specific thoroughfares at specific times for more intensive traffic control.
If the prices charged bear a reasonable relationship to the supply and demand for roadways, there are also payoffs with respect to information about driver preferences and road construction. In response to a higher price, for example, some travelers may choose to carpool, change the time of their travel, or use an alternative form of transportation. The higher price signals to people that they should consider changing their behavior, but the people involved make the decisions based on their own information about circumstances of time and place (Hayek 1945). …