Everything has a price

You may know, because they are relatively famous examples, that in British citizens wishing to enter inner London streets during peak times have to pay a toll. This was enacted based on the economic premise of marginal benefit. In case it’s been a while since you took Econ101, marginal benefit is the amount of money someone is willing to pay for a service. If they pay less then that, they feel they are getting a good deal. If they pay that price, the believe it is fair. They refuse to pay a price above that price. In other words, if your marginal benefit from a bag of chips is $0.50, you will cease to want a bag of chips if they cost $0.60. If you still want it at sixty cents, then that was your real marginal benefit. Therefore, the British government figured that they just had to raise the price high enough that a majority of people wouldn’t use the roads and then congestion would vanish. It has mostly worked out right.

In the United States the Route 91 Expressway in California is based on a similar concept. Instead of driving on the free roads, full of so much congestion, come drive on the toll roads, guaranteed to have less congestion because most people don’t want to pay to use a road. (Even Sim City 4: Rush Hour used this concept) It worked on first, until everyone started taking the road and then it wasn’t work paying anymore. The correct economic solution? Raise the price! So they did and it went from $2 to use to the road to $12.99 to use the road. And it worked – as the prices went up, people stopped using it until the right amount of people were using it again. It has been operating for about 10 years and now other states are getting ready to try this.

Hitting home for me is the fact that Maryland is looking to add a similar toll highway on the Capitol Beltway. Anyone who’s ever been there knows that it is infamous for have WAY too much congestion. A toll road would relieve some congestion while providing additional tax dollars for the state. Additionally, this road is going to really be high tech – at least that’s what they have planned for it. Sensors in the road will communicate with the toll boths to dynamically adjust toll prices to reflect the actual congestion on the road. The more congested it was, the more it would cost. This would allow a more complex pricing structure than just peak and off peak. As a techno-geek, I’m excited about the prospect.

When I do move to Maryland, I probably wouldn’t be using either one too often because I’d be workign in-state, not commuting to DC. However, as I think the current shortest route to NYC goes through the Beltway, I’d certainly welcome the ability to go a little faster.

Author: Eric Mesa

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