Transcript Lecture 12

GE 541
November 4, 2008
Experience with Transport
Externalities
• Accidents
• Congestion
• Air pollution
Motor Vehicle Accidents
Miller’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
Fatalities
US
(Miller)
34%
UK
(Newbury*)
49%
Nonfatal Injuries 53%
Property
13%
Damage & Time
Delays
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)
Traffic Fatalities Fell 1970 - 72 sharply
US 60%
Canada 65%
Japan 72%
Europe 60%
Road improvements
reduce drunk driving
vehicle safety.
Issues in Valuation
Valuing Health Consequences
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)
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.
Do People Seek Out a Certain
Level of Risk Taking?
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?
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
(1992)
Auto emissions in LA Region
$0.03 per vehicle mile
Truck Emission Damages
- are more damaging by a factor of 16 (SmallKazimi)
- 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 small effect
(LA))
Employee Parking
1.4-2% reduction
($3/day)
(small # work trips)
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