ERP, Part 2

More on the Choo Zheng Xi’s attack on ERP. He writes:

The syllogism by which [the government has] derived the solution is as follows:
1) There is congestion from people driving cars.
2) People drive less if they have to pay more.
3) Ergo, the more we make people pay, the less they will drive, hence eradicating the scourge of congestion.

Now, as anyone who has taken even just A-level economics knows, the consensus amongst economists that congestion pricing is good does not rest upon a mere ’syllogism’ of this type. Rather, it comes out of complex mathematical models that consider the social and private costs and benefits of congestion pricing. In the simplest cartoon model, without congestion pricing, the negative externalities of driving are not adequately charged for and the total amount consumed of a product is more than the maximally desirable amount for society. That is, when you do not charge people for polluting the public atmosphere and causing delays for other people, they will tend to consume too much of the product in question, where by ‘too much’ we mean ‘too much’ relative to the level of consumption that will maximise the benefit/cost difference. If you wish to know more about congestion pricing beyond this simple cartoon explanation, just search for “congestion pricing” on Google Scholar and you will get more information than you can read in your lifetime. Almost all of which is in favour of congestion pricing.

Of course, if you’re one of those who distrusts academics or economists and thinks their models are worthless, then all I can say is, I am much more inclined to take the word of experts who have researched the subject for years over yours. If you have some new argument, yet to be raised in the literature, against congestion pricing, by all means publish a paper on it. Plenty of mayors around the world who have to deal with the scourge of traffic congestion would love to know how they can get around the problem without introducing politically unpopular measures like road pricing (look at what happened to Ken Livingstone). Unfortunately for these mayors, at present, just as with Clinton and McCain’s ridiculous idea of a ‘gas tax holiday’, you’d be hard pressed to find an economist who would not recommend congestion pricing. And no, “it hurts my pocket” is no argument. It also hurts your pocket when you are fined for littering, but we don’t consider that as an argument against fines for littering.

Now, I actually agree with Zheng Xi on one point, and that is that it would be far easier to swallow congestion pricing if the revenues from it actually went back into improving transportation alternatives like public transit. At the moment, I don’t know if any of it actually goes to public transit. But if the government is serious about making people transition to public transit, it seems to me that they should have taken that line to sell the idea of ERP. Rather than merely spewing the usual robotic lines. All the same, the validity of this criticism of the government does not mean you are allowed to misrepresent the arguments for ERP as a silly syllogism, when there is actually a large body of detailed research supporting the social desirability of congestion pricing.

2 Comments »

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  1. His critique on ERP is rather terrible. I agree with most of what you have said, but i think you miss out COE, which makes ERP less effective. Because people fork out so much money for their cars due to COE, they will want to maximize the usage of their cars and are less deterred by the ERP on their freedom of movement. That is to say, car driving is likely to be highly price inelastic to ERP.

    But, but, the good thing in Singapore is that since we can be so politically insensitive to high ERP, car owners will eventually feel the pinch. I literally count the number of times I get zapped as i drive into the CBD area. So it stil l works.

    Comment by CS — June 23, 2008 @ 1:38 pm

  2. I think that there should be no COE. Taxes should be on usage and not ownership. Get rid of COE and shift it all to petrol taxes and ERP.

    Of course, in the absence of other taxes, COE is better than nothing (otherwise the nation will be in permanent gridlock), but there is nothing administratively difficult about raising petrol taxes and ERP, so why not. Yeah, it’s politically unpopular, but if there’s any benefit to living under a benevolent dictatorship, surely it’s the possibility of the dictators implementing good policies that are wrongly detested by the common man.

    Comment by twasher — June 23, 2008 @ 3:41 pm

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