Against Jam and Harvest
Dynamic tolling needs the right incentives to work
A few notes before we begin.
Firstly, I’m pleased that the New York Post solicited a guest column from me on how to fix the TSA. If that whets your appetite, I go into more detail here in Changing Lanes, in “Airports Are Too Safe”.
Secondly, yesterday the Washington Post published an opinion piece of mine on an unexpected topic: how to efficiently organize your calendar. If you are a knowledge worker, I think you will benefit from taking the advice I offer there.
Finally, I’d like to invite you to the first Changing Lanes livestream! I’ve published some interviews as transcripts in the past; the time has come to do some live in real time. My first guest will be Bern Grush, a co-author of my book The End of Driving, on the future of urban mobility, and the start-up he’s founded to build that future. Fair warning: Bern and I have some disagreements on this subject, which we will probe. I think it will be a fun conversation!
Tune in on Thursday, 28 May at 1200h EST. Subscribers will be notified when we go live, but you may also sign up here.
The only rational way to allocate scarce road capacity is price. William Vickrey worked out why in the 1960s: every car on a congested road imposes a small delay on every other car, without paying for it. Charge drivers an amount that offsets the cost they impose on everyone else, and the incentive to avoid peak hours sharpens; demand adjusts; trips get faster.
In North America, we have implemented road pricing in a few ways. There’s the congestion charge levied on vehicles entering southern Manhattan. There are some toll roads, like Ontario’s 407 ETR or the Pennsylvania Turnpike. The congestion charge is unique here, and toll roads, due to their unpopularity, are rare. Far more common is the managed lane.
A managed lane is a new lane built on an existing road, which is only accessible to people willing to pay to do so. That price isn’t fixed; it’s a dynamic charge that reflects demand, rising as more people use the lane and falling as fewer do, ensuring that the lane is always moving.
Managed lanes are one of the more successful transport innovations of the past thirty years. Drivers who need a fast, reliable trip can pay for it; drivers who are indifferent or cash-constrained can still use the free lanes to reach their destination. On the other side, the operator of the lane makes good money. Fitch, the ratings agency, has either upgraded or placed a Positive Outlook on eight managed lane facilities in the past thirteen months. Scott Monroe, Fitch’s senior director, calls managed lanes “the fastest-growing sector in ground transportation,” with appeal “across the ideological spectrum.”
So managed lanes work, under the right conditions. Unfortunately, there is a way that they can go very wrong. There is a vulnerability in the model that hinges on one clause, or rather the absence of one clause, in the concession contract. Given that some of these contracts run for ninety-nine years, getting the clause wrong has long-lasting consequences.
The vulnerability has a name: jam and harvest.
