View all Articles
Commentary By Matthew E. Kahn

Will Uber's Rise Lead to Widespread Adoption of Urban Road Pricing?

Economics Infrastructure & Transportation

The Texas Transportation Institute estimates that U.S. road travelers lost 8.8 billion hours stuck in traffic congestion in 2017. Such idling increased gasoline consumption by 3.3 billion gallons and added up to an estimated total cost of congestion of $166 billion. The 2019 report states: “The average auto commuter spends 54 hours in congestion and wastes 21 gallons of fuel due to congestion at a cost of $1,080 in wasted time and fuel.” The private cost of such lost time rises as our wages rise because time is money. 

There is a simple solution to these problems: adopt road pricing. It is surprising to urban and transport economists that more cities have not embraced this commonsense solution, especially given its success in Stockholm, Singapore and London. Road pricing, charging more for urban road access at peak times and charging vehicles for entering congested parts of a city to mitigate the Tragedy of the Commons.  Each driver unintentionally slows down every other driver when he/she gets on the road.  Free road access sends the wrong signal. If drivers were to be exposed to such congestion charges, they would have an incentive to restrict the timing of their trips to off-peak, to use public transport and to consider carpooling.

At a time when Manhattan is trying to implement road pricing, a surprising new factor has emerged that increases the odds more cities will introduce this Pigouvian policy. The rise of Uber and other ridesharing services could tip the balance in favor of road pricing.

New research argues that ride sharing increases total miles driven in cities because it is easy and comfortable, and lowers the price of getting around town by car. Unlike in the past, such vehicles do not park and they tend to be fuel efficient, thereby lowering the price per mile. Part of these cost savings are passed on to ridesharing customers. Thus, the rise of Uber exacerbates the urban Tragedy of the Commons problem. While ridesharing miles continue to be a relatively small percentage of all urban miles (Uber and Lyft supplied 13% of San Francisco’s vehicle miles traveled in 2019), traffic engineers have documented that even small increases in passenger miles can reduce urban traffic speeds. These non-linear effects mean that Uber can certainly slow down traffic.

The behavioral economics literature argues that many people oppose taxes and new fees because they are salient. People have grown accustomed to low gas prices and zero charges for using the roads.  Recent research on both EZ-Pass and auto-pay highlight that people consume more goods when they are “unaware” of the charge and it just gets charged to a credit card.  In the case of Uber, people using the rideshare service would not pay the congestion charge directly.  Instead, this charge would become part of their total Uber charge. This charge would then be less “salient” to them.

Two independent research papers by the Nobel Laureate Gary Becker are relevant here. Becker argued that the full price of any good is the purchase price and the value of the time needed to acquire and use and dispose of the good. Take, for example, a woman who travels to another city on a business trip. She can either rent a car or take ride shares to travel around the city. If she rents a car, her expenses are the car rental and the cost of gasoline and parking. If there is a congestion charge, there is another trade-off.  The businesswoman must pay this charge but she saves time. People who value time highly will view this trade-off as worthwhile and will happily pay the charge. If Uber significantly contributes to traffic congestion, then even lower wage workers will realize that they prefer the congestion charge because it saves them time too. 

In a second piece of research, Becker explored the question of whether laws that become out of date (such as not charging for road pricing), and start to create inefficiencies, are updated over time. He argued that as the inefficiency of the status-quo policies grows, it increases the probability of policy reform. In this sense, the rise of Uber in cities makes the congestion problem worse and heightens the need for road pricing.

Road pricing is more likely to be enacted in cities if the median voter supports it. An open question is whether city-dwellers can imagine how the new tax they’ll pay will increase their quality of life. The economics literature predicts that, over time, people will come to support this policy because the rise in ride sharing means the cost is less salient and the status-quo policy of not pricing congestion is becoming increasingly costly as traffic worsens and our value of time increases.

As an added bonus, congestion pricing offers a new source of revenue for cash-strapped cities.  Mayor Bill de Blasio has sought to be a national leader.  While he will not be the next president of the United States, his leadership on road pricing will help New York City to become a “guinea pig” for the rest of the nation.  Such urban-policy experimentation helps to nudge other cities to adopt more efficient policies.  This case study will highlight both the net gains from adopting this policy, the distributional effects of this policy, and the public response to it.  If there are important unintended consequences of road pricing, then we will learn these lessons as well.  If many leading cities adopt road pricing, then future editions of the Texas Transportation Institute’s mobility reports will highlight key progress indicators of urban quality of life.

Matthew E. Kahn is the Bloomberg Distinguished Professor of Economics and Business at Johns Hopkins University and Director of the 21st Century Cities Initiative

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.

Photo by Andrei Stanescu/iStock