Economics 101: How Driving Into Manhattan Costs $160

July 17, 2009

It's Friday, which is our day for more esoteric items. Today's offering: A dense economics blog post, which covers an even more frighteningly complex model for assessing the costs of traffic in New York City.

The punch line: If you drive your car into Manhattan, adding to the traffic there causes thousands of little delays for all the other vehicles in the city. And the total value of those delays is $160.

Reuters blogger, commentator, and economist Felix Salmon cites that example from "Charles Komanoff’s absolutely astonishing Balanced Tranportation Analyzer — a 3.5 MB Excel spreadsheet [that]is the product of many years of research and analysis into the question of New York City traffic."

On weekdays, says Komanoff, a car driven into the most congested area of Manhattan--south of 60th Street--causes delays for every other vehicle that total 3.26 hours. If, he calculates, an average vehicle has 1.97 people in it, the average value of an hour of saved vehicle time is $48.89. Multiply 3.26 hours by $48.89/hour, and there's your $160.

Drivers don't pay that directly, of course. That's the cost imposed on everyone else by the presence of their vehicle. In economic theory, that's known as an "externality"--a cost incurred somewhere else than by the person who causes it. Air pollution, for example, is an externality:  Minus carbon taxes or cap-and-trade schemes, the emitters don't pay the costs of fouling the air. The rest of us do.

Where does all this lead? Komanoff lets users model different costs for entering Manhattan, and the idea of congestion pricing--imposing a toll to enter a crowded center-city area, as is now done in London and Stockholm--is never too far away from his analysis.

The basic rules of economic theory would indicate that a scarce resource (road space in Manhattan) should cost more than an abundant resource. And if the costs of entering Manhattan rose, it would get less congested--saving time and money for all.

But try telling that to the politicians. Or, for that matter, the drivers.

[Reuters Blogs; Manhattan traffic photo by Flickr user JamesH2008]

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