Heyne, Boettke, and Prychitko on Congestion Pricing
I’m using my favorite textbook for my Executive MBA economics course: The Economic Way of Thinking by the late Paul Heyne, Peter Boettke, and David Prychitko. I’m using the 11th edition, which I prefer to the 12th edition. I haven’t checked the 13th edition, but I tend to use earlier editions to save my students a lot of money. So the bottom line is that it’s possible that the 13th edition doesn’t have the problem I’m about to point out with the 11th and 12th.
In an otherwise-excellent section in which the authors lay out the case for congestion pricing of freeways, they write:
There is a way. It’s called pricing. Economists call it congestion pricing. Almost everyone calls it tolls for driving and doesn’t want to hear anything more about it. “I pay for the roads with my gasoline taxes; I don’t want to pay again with a toll.” But gasoline taxes pay the cost of constructing the road, not the cost of using them. [italics in original]
There’s a better argument. It’s that charging a price for using the road is a better way of paying for roads than using taxes. The price doesn’t have to be just a high price at congested times. It can also be a low price for uncongested times. Just as hotel room rates, peak and offpeak, pay not only for the cost of using hotels but also for the cost of constructing them, so tolls can pay for the cost of using roads and the cost of constructing them. Indeed, if the tolls cannot pay for both, there’s a strong argument that the road shouldn’t be constructed.
In other words, the authors shouldn’t take the gasoline taxes as an immutable fact. In a book that goes to the root of the problem on so many issues, the authors should also go to the root on this issue. How? By pointing out that, if your goal is efficiency, gasoline taxes should be cut and tolls should be increased. It might even be made revenue-neutral.
One other advantage of tolls over gasoline taxes is that the prospect of tolls, even if it’s government that charges them, can cause producers of highways to think about where highways are demanded more. And of course once the highways are already built, tolls can replace gasoline taxes as sources of revenue to maintain the highways.