GE 541

November 4, 2008

Experience with Transport Externalities

• Accidents

• Congestion

• Air pollution

Motor Vehicle AccidentsMiller’s (1993) study in U.S

Motor Vehicle Accidents Cost $333 Billion in 1988 - average $0.164 /vehicle mile

Newbury (UK)

1984 Accident costs £26 Billion (1986 prices or US$0.22 /veh.mile)

Approximate 7 and 5% of GDP in US & UK

-other studies Quinet (1994) report lower values of 1.5 - 2% of GDP (some of these include rural areas)

Note: The cost estimates are relative to a world with no accidents

US

(Miller)

UK

(Newbury*)Fatalities 34% 49%

Nonfatal Injuries 53%

Property Damage & Time Delays

13%51%

*Newbury uses value of life (VOL) value 50% higher than Miller.Also neither study uses insurance Admin. Costs (perhaps 2/3 of property damage)

US 60%

Canada 65%

Japan 72%

Europe 60%

Road improvements reduce drunk driving vehicle safety.

Traffic Fatalities Fell 1970 - 72 sharply

Issues in Valuation

Aggregate of individuals’ willingness to pay to reduce risk of injury or death from accidents (as contrasted with the abandoned practice of measuring “market value” of lost production)

Valuing Health Consequences

Reduction in Risk of Death

For industrialized countries, these values are:

$1.5 - 9.0 million for statistical life(i.e. $1.50 - 9.00 for a marginal increment of 1 per million in risk of death)

[Literature on valuing statistical lives for use in CBA]

How Does Value of Life (VOL) Vary Across Population Groups?

Not a settled question

If VOL varies inversely with age, that variation would further increase the relative cost of motor vehicle accidents (which kill people of all ages)

Contrast this with air pollution which proportionally kills more older people with cancer and respiratory illnesses.

In addition to individual’s WTP, an additional amount to reflect concerns of family and friends?

WTP surveys in UK based on ‘contingent evaluation’. From such surveys of WTP, the average valuation of a “serious” non-fatal injury is about 9.5% of that of a fatal injury.

The Demand for Safety in Vehicles

WTP for safety improvements for models with high safety ranking or models with good records of actual safety worthiness.

Related Issue of Driver Behavior ~ changing because of improved safety

Peltzman’s effect of rash driving offsetting technologically mandated safety benefits. Studies show still residual benefits from safety improvement. ~ Unintended consequences.

Variations of Accident Costs with Traffic Values

What is the elasticity of total accident cost on a road with respect to traffic volume? If Ecv is > 1, there is a negative externality, since each user imposes costs on the other users, causing social marginal cost to exceed private marginal cost.

In studies in Detroit and Norway, accident rates decline with volume - however, on evenings and weekends, poor visibility and alcohol use may have counter effects

Accident Costs Borne by Non Motorists

Pedestrians and cyclists account for 50% of deaths in the UK (but a higher portion in the less developed counties).

Public sector in the US pays for uninsured expenses.

Insurance and Accident Costs

How do people perceive insurance costs?

Insurance firms set premiums based on driver performance (age, sex, residual location, prior accident record)

How does this affect driver behavior?

In a tort system with strict liability, user responsible for paying full costs. Efficiency requires that the user must be faced with the expected social costs of his/her decisions.

Effect of Tort and Criminal Law

Some analysis of liability damages suggest that allowing such damages to be recorded may reduce welfare by forcing drivers as a group to buy insurance they do not really want.

Risk taking behavior of young drivers

Their behavior is probably an outlet for psychological motivations which would need another outlet anyway?

More or less costly alternative?

Do People Seek Out a Certain Level of Risk Taking?

Summing Up

• Accidents entail externalities, although their exact nature and magnitude unknown.

• Valuation of accident costs require sophisticated concepts and tough empirical challenges

• Also the behavior and technology that produce accidents interact strongly with insurance and legal institutions, increasing the challenge of accurate analysis of incentive and policy effects

• Some regulatory approaches to combat disruptive social behavior - drunk driving.

Motor Vehicle Air Pollution

Second Major Externality

Damage

Health and material damage effects in urban regions

(i) Quinet (for U.S., Australia & Europe) (Aggregate Social Costs) for noise 0.3% of GDP for air pollution 0.4% of GDP (ii) Small-Kazimi Auto emissions in LA Region (1992) $0.03 per vehicle mile

Truck Emission Damages

- are more damaging by a factor of 16 (Small-Kazimi)

- are more damaging by a factor of 10 (Deluchi)

Most of the damages stem from health costs from inhaling PMs, SUX, VOC and NOX

US ambient air quality levels much improved

CO2 emission reduction proposal limited yet

Relationship Between Congestion and Pollution

Congestion is specific to location and time while Pollution emission specific to vehicle attributes and driver behavior.

Congestion pricing can reduce air pollution but not enough to serve environmental goals.

High congestion charges in LA/SF would lower VOC by 5.5% and 8.2% and CO2 emission by 6.5 and 9.2% - primary effects is to shift traffic from peak to nonpeak.

Technological Controls

Most effects from mandated reductions in emission results per vehicle mile

1993 Cars emitting 95% less VOC and CO and 75% less NOX (as compared to 1968)

Remaining emissions due to: (i) Gross emitters (ii) Large emissions during brief periods (as when

accelerating and entering a freeway) (iii) Inspection and maintenance

• Measuring roadside emissions by light absorption from a roadside laser beam

• Reformulation of fuels (1990 Clean Air Act)

• Alternative Fuel Vehicles

• Zero Emissions

Strategy Cost Effectiveness (costs per ton of VOCs removed)

Reformulated Gasoline and I & M

$1,800 - 6,000/Ton VOC

Alternative Fuel Vehicles Electric

$29,000 - $108,000

Transport Cost and Measures

Pricing Policy

Pollution fees ($110/yr/car (LA))

small effect

Employee Parking

($3/day)

(small # work trips)

1.4-2% reduction

Gasoline Tax ($2/gallon)

Tax Equation of $670

VMT & Emission reduction by 81%(Not emission based and ineffective)

36% reduction of CO2

Marketable Permits

Summing Up

Marginal social costs of motor use due to air pollution is a small fraction of marginal cost of urban driving. If levies on emissions damages (caused by vehicles) are enforced and vehicle traffic would not be affected much. So the most efficient approach is to reduce the emissions per vehicle mile.

The major method for lowering emissions/mile has been Clean Air Act. Must be complemented by I & M.

CO2 pollution is quite different. Incentives for fuel conservation - a technical solution?

Per Capita Passenger Car Ownership, Passenger Travel, and Road Network: The US and 17 European Nations

Average Motor Fuel Tax Rates: US