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Fixing Congestion: Carrot or Stick?

Congestion pricing seems likely to become a bit of a hot topic in Auckland over the next few months, as various ways to ‘plug the gap’ between the amount of money required for the transport projects wanted and the amount of funding actually available are explored. An article at the excellent Atlantic Cities blog points out some recent research into the effectiveness of congestion pricing at reducing peak time congestion compared to other measures – most specifically rewarding those who travel during off-peak times.

Congestion pricing is generally considered to have two aims: raising revenue and discouraging car travel either to certain areas or at certain times of the day. For most transport economists, the focus is on the second of these matters, as congestion charging is a pretty inefficient revenue generator – due to its significant administration costs (especially when compared to fuel tax, which is incredibly cheap to administer). The theory goes that roads are congested at peak times because peak time road-space is a scarce resource, and by under-charging for it we are creating too much demand for the relatively limited amount of available supply. In order to use this road-space more efficiently, we should charge higher rates at times (or in locations) where demand is highest. This will encourage people to travel outside peak times or to take public transport, walk or cycle, instead of driving.

The beauty of congestion pricing is that it gets around, to an extent, the problem of induced demand. Historically, we have tried to solve congestion by simply building more and more supply – and then for some reason being surprised when that supply is taken up quickly, leading to our roads being just as congested as before the widening/new building took place. Congestion pricing means that we don’t have to go and spend a huge amount of money on additional capacity, only to see it eaten up close to immediately. Rather, it means that trips which can be taken in another way often area, as many people with options will choose to avoid paying the charge. Of course induced demand doesn’t disappear completely – freer flowing roads encourage further traffic which can mean that congestion charges need to keep on being hiked up to ensure the roads stay free-flowing: the same ‘chicken-and-egg’ spiral you get with road widening, although more helpfully this time you’re making money rather than spending increasingly eye-watering amount on roading projects.

Of course an alternative to charging people for driving at peak time is to instead offer rewards for travelling off-peak. Fundamentally, either option could have the effect of helping to ‘spread the load’ and reduce peak time congestion. In a sense we do this at the moment, through subsidising public transport services for their ‘congestion relief’ benefits: which are particularly applicable at peak times. It’s in the best interests of motorists to have a lot of people on public transport. Therefore it’s sensible for drivers to help keep PT fares lower than they would otherwise be, through contributing to subsidies. The question is, what if we extend this theory to directly encouraging people to travel outside peak times?

That’s what this study in the Netherlands looked at, and here’s its abstract:

In a 13-week field study conducted in The Netherlands, participants were provided with daily rewards – monetary and in-kind, in order to encourage them to avoid driving during the morning rush-hour. Participants could earn a reward (money or credits to keep a Smartphone handset), by driving to work earlier or later, by switching to another mode or by teleworking. The collected data, complemented with pre and post measurement surveys, were analyzed using longitudinal techniques and mixed logistic regression. The results assert that the reward is the main extrinsic motivation for discouraging rush-hour driving. The monetary reward exhibits diminishing sensitivity, whereas the Smartphone has endowment qualities. Although the reward influences the motivation to avoid the rush-hour, the choice how to change behavior is influenced by additional factors including education, scheduling, habitual behavior, attitudes, and travel information availability.

A further academic article looks at making a comparison between the effectiveness of congestion pricing schemes and the kind of reward scheme the Netherlands study trialled. The results of the study are quite interesting – starting with the differences in the changes people made when either a cost or a reward was provided to encourage them to drive outside peak times:  I’m not entirely sure what’s with the bike result, but it seems that the major difference is that the reward scheme generally encouraged people to travel outside peak time or to shift to public transport at a higher rate than road pricing did. Road pricing seemed more successful at shifting people to riding bikes, other modes (presumably largely walking) or staying at home.

But this is only a part of the story. What really matters is the issue about how effective the two schemes are at achieving their primary purpose – which is to reduce peak time car travel. And the results of that are quite interesting: There are some variations in the methodologies for the different studies that went into creating these results, but the distinction seems pretty sharp at an overall level of analysis. It seems that people do respond better to rewards than to ‘punishment’ when it comes to shifting away from travelling at peak times by car.

Of course reward schemes are potentially quite challenging to fairly implement, and of course they cost money rather than generate it – as road pricing does. However, obviously they’re likely to be quite a lot more politically acceptable and if they are more effective at getting the results we want, then they might be a legitimate form of public intervention. Put in a slightly different way, spending money on reward schemes to reduce peak time congestion might be quite a lot cheaper, quicker and more effective than spending money on increasing roading capacity with the same goal.

5 comments to Fixing Congestion: Carrot or Stick?

  • Amy

    hmmm, I struggle to imagine how you could give people instantaneous (and I think they would have to be pretty immediate to work, because people don’t respond well to delayed reinforcement) rewards for traveling off-peak. Maybe you could do it if you set up cameras to scan everybody’s license plates as they went onto motorways and rewarded those entering after 9 by sending them a text (or something) saying “You’ve received xx credit”? But how would you pay for such a (doubtless very expensive) scheme if you weren’t recouping some of the cost in tolls? And how would your system tell the difference between somebody who normally commutes in peak and somebody who just happens to be driving to Manukau that day but actually already drove into their work at 8 am. It couldn’t, really, so you would have to just reward everybody on the roads outside peak hour.

  • Oriel

    I came up with a public transport rewards system for an advertising course I did last year.

    It’s called CityMiles. http://www.orieldavislyons.com/CityMiles

    Sorry to self promote here, but I’m surprised it hasn’t been done sooner. I would also be in favour of a peak-hour congestion charge though. It would at least encourage car-pooling and cut out the people who drive in from their homes in the inner-suburbs just because they don’t like catching the bus.

  • Feijoa

    Surely novelty of being paid, rather than the grin-and-bear-it of paying, would influence any trial. I think charging is the logical and fair way since drivers at anytime put large external costs on society.

    By all means offer a discount on peak for off peak, but still charge, preferably as a replacement for the roading subsidy from rates.

  • Greg N

    Interesting study from The Netherlands on getting people to mode shift and making it work.

    The one issue I have with this study, is that the study presumably stopped after 13 weeks.
    And what interests me is what happened after the 13 weeks were up?

    My expectation is that mostly everyone (but not all) would have switched back to the previous behaviour now that there were no incentives on offer.
    So it doesn’t produce a long term shift in patterns (for some it does if they find the alternatives are better for them).

    So, does this mean that the rewards (cash or kind) have to keep being paid over to keep the change “permanent”?

    And once you have your free phone paid for after XX weeks, whats next to keep you on the peak reward scheme? free upgrade to the next model of phone, a subsidy on your phone bill to encourage you to keep on using that smartphone you earned by your previous peak actions?

    Not knocking the idea at all [would work for me I might add!], but its like someone else said earlier (conan), buying everyone in NZ a modern energy efficient fridge and removing the current one they from operation would more than achieve the energy savings to offset the requirement for the next major power generator (Dam) to be built. So in the broader context subsidies can work and work well.

    Problem with those sorts of “incentives” is that the folks in charge see these things as “distorting the market”, and so get up the market purists noses big time. (and by implication the traffic planners and their political masters/mistresses in the government also get offended at the same time by such concepts as market intervention too as thats what they’re told to think).

    Those same economic purists also believe that once you subsidise something its a forever deal – you can’t stop handing over the rewards or its a .
    And you can see why they think that, imagine if the peak rewards scheme stopped or people got tired of it, and switched back to peak, the system couldn’t cope with the influx.

    This is compared to say building a new road – yes it costs a lot more initially, but its a “one time” cost (so they believe), and anyway, once more traffic swarms onto it, its paying back that investment via road taxes on petrol and fuel taxes/road user charges.

    To put it another way, they believe in buying your own house (even with a large mortgage) is better than renting forever (even if its cheaper overall), because at some in the distant future you will stop paying the mortgage and can then bank the savings (yeah right).

    So, really in these guys minds, building more roads is “a good thing” and subsidising peak users to not use the roads and to catch buses trains etc at peak times is “a bad thing”TM as the costs of the subsidy never decrease and never ever go away.

    The same arguing goes on about subsidising PT even now. Even though most would agree that if you were to not do subsidising, the resultant swarms of cars on roads would cause very major traffic problems in every city in NZ in short order.

    The only gripe I have with subsidies with PT now, and especially in Auckland, is that its like advertising – you know 50% of the money spent is wasted – but you don’t know what 50% it is. So you have to keep the entire spend going just to get the 50% thats doing good. When perhaps a little more careful analysis and rule changes might allow the 50/50 ratio to become more like 75/25 in your favour.

    It should be a no-brainer to do these sorts of things – but it isn’t – in part as those doing the deciding (“Super” Minister Joyce, this includes you), are “no brainers” of a different kind.

  • Roland Sapsford

    The thought that occurs to me is that road pricing and rewards for changing behaviour are not necessarily alternatives. Much as carbon taxes are more acceptable when recycled into measures that help people reduce energy demand, so I suspect that using road pricing revenue in part to fund peak-shifting rewards as well as infrastructure could make such schemes more attractive and acceptable.

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