Will Congestion Pricing Hinder Economic Growth?

Everybody hates traffic congestion. But, people who have spent years studying traffic jams hate it more than everybody else. They believe it is a matter of life and death. Years of learning lets them see the costs of traffic congestion better than others. This should not surprise us because traffic congestion raises commuting time. If, say, traffic congestion doubles the commute time overnight, living 10 kilometres far from the city centre would be as good as living 20 kilometres earlier.

What does this imply? Traffic congestion negates the advantages of living in a city, though this is proportionate to the level of traffic congestion. If traffic congestion rises beyond a point, a city may slowly start emptying out. But this does not mean that traffic congestion is bad. Congestion was the norm in ancient cities. We should expect a fairly high degree of traffic congestion in any city where economic activity is intense.

The Delhi imposed odd-even rule twice, partly to decongest roads. In cities like Singapore and London, charging people for driving through roads (congestion pricing) has decongested the roads far more effectively. Now, most economists believe in congestion pricing. It is undeniable that congestion pricing works. Even if the government builds more roads without charging people for driving, this will not have much of an effect on traffic congestion because the number of people who drive through roads will increase.

But, does this mean that congestion pricing does not impose costs on cities? This is not easy to answer. When you charge people for driving through roads, they are less likely to drive. If we take many people off the roads, especially when public transport is not viable, this will hinder economic activity. Far less people will take up jobs far from their home, and far less people will go to shop. Some jobs would not have many takers from faraway areas. More people may decide to move where offices are. Offices may have to move where people are.

These are not necessarily bad, but these are costly measures. This may lower productivity levels in the central areas of cities. But, being forced to sit in traffic may also lower productivity levels in central areas. After all, no one like to sit in traffic. This is also why people expect a wage premium of about 20 per cent for travelling 45 minutes more to reach their workplace.

The odd-even rule, for example, lowered the congestion on roads for a while. This is true of congestion pricing too. But is this all that matters? Congestion in metros and buses matter too. Many people drive to work precisely because buses and metros are congested. This means that they find congestion in the Metro unbearable, relative to congestion on roads. But when vehicles are taken off roads, more people will use the Metro. Congestion will become worse for people who travel in the metro.

This is not all. Many use public transport because driving through roads in cities like Delhi and Mumbai are difficult. What does this imply? Such people find the congestion on roads more difficult to bear than congestion inside the metro. When vehicles are taken off roads, congestion inside metros and buses will rise, lowering the incentives for such people to use public transport.

But not everybody's needs are urgent. People who are willing to pay for driving through roads either have more urgent needs or higher income levels. Driving through roads is also more important for people with higher income levels because the market places a higher value on its services. Should the roads treat everybody equally? If roads treat everybody equally, it would be difficult to prioritize needs of people and order them hierarchically.  This imposes great costs on cities. The problem of road congestion seems to be more convoluted than what meets the eye!