Transportation microeconomics 101

Reformatted in August 2012 to fix some dead links and make it look slightly nicer. Keep in mind this was written back in 2005; I have changed no content beyond this first paragraph.

I talk about this enough that it might should be its own category.
Problem: Bozoes in government, in the media and elsewhere think about transportation at only the highest level – where you’re moving thousands of people around the city. This usually ends up producing plans which fail spectacularly at serving their intended constituents. Since this often boils down to money, I’ll call this “transportation macroeconomics” even though most of the people who do it aren’t thinking about economics. (Hint: they should be).

Solution: Transportation microeconomics. Whenever evaluating some transportation plan or change in economic conditions, take a couple of representative ‘use-cases’ and analyze the economics of their decision-making at their local (individual) level.

Example 1: Toll Roads. Local activist Roger Baker has been on my case on the austin-bikes email list for talking favorably about toll roads (as the least noxious of the two realistic possible outcomes – the other one being that all of those toll roads are built anyways, but as free roads). I’m going to be more favorable to him than he is to me, and construct an argument based on his stated motivations (he likes to accuse me of being a toll-loving road warrior). Roger’s point is, basically, that the toll roads won’t have enough traffic to pay off the bonds once the “oil peak” causes gasoline to get even more expensive than it is now. He’s definitely one of the SOS-bloc (don’t build these roads at all because they promote sprawl and hurt the aquifer) rather than the free-roads-bloc (“double taxation!”) best exemplified by Brewster McCracken and Gerald Daugherty, who will end up getting central Austin to pay for these roads via property and sales tax kick-ins.

So, is Roger right? Would expensive gasoline lead to an exodus from the suburbs and a default on the bonds which back the toll roads? Or am I right – that the traffic which today would fill the toll roads in a second isn’t going anywhere even as gasoline gets more expensive. Let’s look at a use-case.

Joe Suburban drives his Suburban on a 30-mile round-trip every day from western Travis County to his job in one of the southern suburban office parks. He gets roughly 15 mpg on this commute and pays $2.00/gallon for gas today. By some calculations, which include depreciation, he pays a hefty price for his commute even today, but I categorically reject the idea that suburbanites will reduce the number of vehicles they own (barring catastrophically high gas prices), so depreciation should not honestly be part of the cost equation. Using my handy depreciation-free cost estimator, Joe’s daily commute cost is $2.79 today (remember, no tolls yet). Is that enough to convince Joe to carpool? Not today it isn’t. Is it enough to convince him to use transit? Even at the discounted rate, the bus trip from the park-and-ride at 290/71 costs him probably an hour extra time per day, and still a buck ($1.79 savings at the cost of an hour). This assumes he even HAS a transit option, of course. Most suburbanites don’t.
Suppose gasoline DOUBLES in price – to $4.00 a gallon. Joe’s daily commute cost (with new tolls of, let’s say, $1.50/day) is now: $6.91/day. His “transit cost” is now $5.91 for an hour of time, assuming no rise in bus fares (unlikely). Still not very attractive, I hate to say.

All right, suppose gasoline TRIPLES in price – to $6.00 a gallon. Joe’s cost is $9.58/day. Transit option would save $8.58 a day at the price of an hour. I hate to break it to you, but most suburbanites would still drive at this cost. Bad news for Roger: $6.00/gallon gas is roughly equivalent to $160/barrel (working backwards from this logic which is admittedly crude). That’s quite a bit further down the “oil peak” road than most people think we’ll hit anytime ‘soon’. In other words, it will take such huge increases in the cost of gasoline to get suburbanites to stop driving to work alone that it’s not even a factor for the foreseeable future. Even then, one would assume that rather than abandoning their stake in the ‘burbs, some large percentage of suburban drivers would just get more fuel-efficient cars. At $6.00/gallon, driving a Toyota Prius, Joe Suburban’s daily commute cost drops back to 2.48 without tolls and 3.98 with. Oops.

See my previous article on my ‘week without a car’ — even for me, who is the only guy at my 60-person office who could possibly take the bus to work without transfers, it’s not cost-and-time-effective to use transit until gasoline is really REALLY expensive. It costs me about 30 extra minutes per day and saves me pocket change.

When does transit make sense? When the time penalty is minimal and/or the cost savings are comparatively large. Two obvious (much shorter) use-cases:

  1. If I worked downtown, I could take the #5 bus straight there at a time penalty of perhaps 5 minutes. This time penalty is so small as to be not worth counting, and I could actually get rid of a car, thus moving us into the realm of the traditional commute calculators – a huge economic win for the transit alternative. Unfortunately, the current economic regime penalizes businesses who locate downtown rather than in the ‘burbs (far higher property taxes) even though they generate far less demand on city services.
  2. Lucy Leander works at the University of Texas and has to pay roughly $5/day for parking. She lives close to a park-and-ride where she can pick up a good express bus to work which isn’t much slower than her car would be. Here’s her comparison. Even at $2/gallon, she saves $7.36 a day (without getting rid of a car) and only spends a few more minutes. Note that having to pay for parking makes this comparison far more favorable for transit.

So my lesson is: Major employers should be downtown (where transit can serve them), and parking shouldn’t be free. Until either one of these is fixed, however, you’re going to get nowhere with me by claiming that a plan is economically viable (or not) based on gasoline prices.

Unfortunately, current conventional wisdom is still that spreading jobs through the suburbs reduces average driving (absolutely false). The facts have an anti-suburban bias, I guess.

  • Jeb

    Thanks Mike. Good analysis. There are many commuters on the road that could double their gas mileage by switching from trucks to sedans or triple their mileage by switching from a truck to a hybrid.
    The other two factors that factor into commutes are time and convenience.
    For time, trains are the only transit advantage that offers a potentially faster trip than by personal auto. That is, assuming that the trip is so far that it wouldn’t be faster to walk or cycle once you factor in travel time and time required to park.
    Convenience is largely a matter of commuter perception. Commuters need to see how they can run daily errands to the grocery store, day care, dry cleaners, and other locations while using transit. This means having the services located near either end of a trip. Transit oriented development is intended to meet this need.
    Part of the issue here is that there is also a social benefit in providing households with transportation choices so that they can choose whether or not to undertake all of the expenses associated with having more than one car (e.g. purchase price, gas, maintenance, insurance, etc.). Most people today see that the convenience of multiple cars is worth the expense.

  • Luckily I dumped my Chevy Blazer for a Toyota Matrix (little 4 banger with manual tranny) before the Iraq war, it more than doubled by gas mileage.
    But I concur with your analysis. If you look back at the previous gas shortages and large price hikes, you will notice that Americans shift their automobile purchases from guzzlers to misers initially.
    However, once prices stabilized the pattern swung back close to where the mix was before. If you look at the price of gas compared to inflation from the 1960’s, it is still relatively inexpensive.
    Huge gas tax hikes are political suicide and would have to be enormous to make any appreciable difference. Raising the CAFE requirements sky high will cause major layoffs throughout the us automobile industry. (In which I used to work.)
    So my suggestion is to target the toll plan rates, make the vehicles with poorer gas mileage pay larger fees. It is all automated anyway right? So have a sliding fee scale based on make/model gas mileage. These are usually heavier vehicles anyway and cause more wear and tear on the road.
    Make the fees for a Suburban or Dually high enough and maybe the second car will be a miser like mine.
    Just a thought.

  • Jim Howard

    “Major employers should be downtown”
    So speaks the Supreme Soviet, Transportation sub Commissar.
    Jebas, who the hell do you think you are???
    You want major employers downtown? Fine. You start a company, hire a thousand people, build an office for them downtown, and charge them to park.
    A much better idea would be for the Supreme Soviet to order major employers to locate next to shopping malls, where the parking lots are not usually crowded during daytime.
    Of course once upon a time there was a country where employers were free to locate their business where they wanted, and employees were free to apply or not apply for a job at a particular employer. That country was called “The United States”. You should read up on it sometime.