The School of Economics invites you to a seminar presented by Leslie Martin (University of Melbourne).

Co-authors:

Sam Thornton (Productivity Commission)

Abstract

We use a large field experiment to document who responds to road use prices and explore the extent to which distance, time of day, and location-based charges would actually reduce congestion. The experiment collected six-second location data from GPS transponders installed in 1400 vehicles over a nine month period and implemented different prices via a system of credit accounts. We find an average price elasticity of -0.11 to uniform per kilometer charges, which is consistent with the literature on short-term demand response to fuel price increases. We also provide evidence that higher fuel taxes are unlikely to reduce congestion. We document that under uniform per kilometer charges, drivers drop trip segments that were not contributing to congestion externalities. We find no evidence that in the short run higher prices affect work commutes, the use of highly-congested roads, or time spent driving at low speeds. In our context, time-varying and location-based charges are slightly more effective at discouraging road use that contributes to congestion. Finally, we show that because low-income drivers contribute least to congestion externalities and respond most to road use charges, they would be better off if existing sources of road revenues were replaced with fees that better reflect each driver’s contribution to road use externalities.