Age-free-ride-06-02-07

Road-use charge would force more to public transport Joshua Gans 7 March, 2006 th

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).