South-Western EconNews

South-Western College Publishing - Economics

Toll-road price increases are forcing people to ride together

Subject

Tolls on America’s toll roads are increasing this year.

Topic

Economics and the Environment; Government and the Economy

Key Words

toll, increase, costs, subsidy.

News Story

The amount of money people must pay to use particular roads in the US is increasing this year. On over a third of American toll roads, rates are increasing anywhere from 5% to 100%.

It now costs $3, a 50% increase over the previous toll, to cross the San Francisco Bay Bridge; the New York State Thruway will cost $18.50, up from $14.70 last year, to drive the full 641 miles. The Illinois Tollway is increasing tolls by 56%.

In conjunction with the toll increases, transportation authorities are trying to make it easier on commuters by incorporating electronic payments using a transponder on the dashboard of a car. When the transponder indicates toll road use, the toll is automatically deducted from the user’s prepaid account on his/her credit card.

Transportation departments are increasing funds for a number of reasons--most notably additional road repair needed because of the steady increase in commuter traffic over time. Other increases simply reflect an inflation-adjustment: Pennsylvania’s toll increases were the first since 1991, for example.

Money coming from the toll increases pays for additional services, a mechanism known as cross-subsidization. Cross-subsidy arrangements are common in public policy; for example, the tax on cigarettes is (ideally) used to pay for health care-related issues. Funds from toll roads are earmarked for other uses as well. Tolls on the Dulles Toll Road in Virginia are set to double to $3, with the proceeds going to finance a commuter rail line in the area. Further, those who choose not to use tolls may avoid the cost, but these individuals incur other costs, including additional time spent commuting. Avoiding toll roads typically implies a longer, less-direct route to a destination.

Questions

1.	Officials began turning to toll roads as a way of eliminating the external cost imposed on other drivers. What is this external cost, and why does imposing a toll eliminate the externality?
2.	What can be said about elasticity of commuting time for those who choose to use the toll roads? Why?
3.	Does use of the electronic payments with the transponder reduce costs at all? Why or why not? Use economic arguments in your answer.

Source

Daniel Machalaba. “Steep Increases for Toll Roads.” The Wall Street Journal. D1. 12 April 2005.