Demand Too Elastic?
London’s congestion charge, which seemed like such a good idea from an economic perspective, may have run afoul of elastic demand, according to an article by Iain Murray.
economists…estimated that a reduction in traffic of 15 percent would require that £5 fee. Unfortunately, they got their sums wrong. The reduction in traffic has been far greater than anticipated. This has several consequences. First, it has meant a shortfall in Capita’s revenues…Far from the congestion fee benefiting London’s public transport network, it has harmed it.
For Discussion. Can we tell whether the problem is that the demand for driving into central London is too low or too elastic? Is it possible that there is no price that would generate the required revenue?