Road-use charge would force more to public transport

Joshua Gans
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7 March, 2006

The weekend’s Sunday Age had a front page story exploring a ‘radical idea’ for public
transport: make it free. Based on recent work by Monash Associate Professor Frank
Fisher, it argued that for $340 million in lost revenue per year 25 to 30 per cent more
people would use public transport saving road congestion and obviating the need for
more stronger measures to eliminate traffic from the CBD.

This is a good idea and certainly one element in any plan to deal with congested roads. In
actuality, however, that is a far bigger problem required a direct solution: road pricing.
We already have road pricing on a few freeways, including CityLink. Of course, the
rationale for that is not environmental concerns but road funding. So what we have there
is a ‘one price fits all’ situation where commuters face the same price whether they travel
in peak or off-peak times. This is a poor outcome for generating better public transport
use and reduced road congestion because it does not take into accounts the true costs
incurred when commuters use roads. This cost is not just the cost of the roads themselves
but the costs imposed on other commuters when each adds to traffic, time wasted and
consequent pollution.

In our book, Finishing the Job (published by Melbourne University Publishing in 2004),
Stephen King and I considered free public transport as a way of combating road
congestion. However, we went further. We argued that the first step was to establish a
‘Citilink’ style toll system on all major roads. Moreover, this would be priced based on
the true costs commuters impose: specifically, charges would rise in peak times and be
much lower otherwise. This would encourage commuters to switch their commuting time
as well as consider taking public transport or car pooling.

Indeed, being economists, we saw no reason why congestion pricing couldn’t be real
time. If you chose a travel time where traffic was particularly bad, you would face very
high charges. So high, in fact, that you might want to check your ‘route price’ before
setting out for work.

On the other hand, choose a travel time with no traffic and you might travel for free.
Most commuting is habitual and routinised. As such, there would be real benefits for
getting commuters to focus on their average costs of choosing one route over another.

This is where the public transport equation enters the mix. First, the tolls on the roads
could fund dramatically reduced public transport fees – maybe even negative ones (where
you effectively get paid to use public transport). As noted by the Sunday Age, that would
reduce congestion problems on roads.

Second, if e-Tags could be used to charge cards why couldn’t they be used to credit
public transport users. So get on a tram, swipe your card and you get a credit. The credit
may be credits towards your road account so commuters would face a ‘double incentive’
not to use the road or at least to use them at the right times. Moreover, there is no reason
why real time pricing couldn’t be used here too to improve congestion on public transport
and send signals as to when it was really economically efficient to put on more services.

The result would be a technological means of pricing the externalities, better incentives
and an improved environment. So I don’t think The Age idea is all that radical but
blindingly sensible step in good management of the transportation system.

The real mystery is why so-called environmentally conscious governments do not

consider them.

Joshua Gans is Professor of Management (Information Economics) at Melbourne

Business School. You can read more about these ideas on his blog
(coreecon.blogspot.com).