Sleeping That Extra Half Hour Should Be Costly – Battling Traffic Jams With the Proper Economic Incentives

I was slowly making my way through traffic today when various thoughts occurred to me. This has been an especially tough week with traffic jams lasting forever.

I’m curios as to the economic nature of traffic jams. Surely given the proper incentives traffic jams can be eased considerably. I myself consider standing in traffic jams a complete waste of precious time. This waste of a valuable resource is a strong enough incentive for me to leave home early and return late. This does not seem to be the case for everyone. It seems some people don’t really mind their wasted time.

I believe people often lack the understanding of economic value as utility and attribute it to money only. Their time is not as precious. An interesting experiment would be to try and translate that loss to a common and measurable quantifier: Money.

The waste caused by traffic jams is enormous and encapsulates time, environmental damage, stress, noise, car wear and more. Clearly reducing traffic jams is an economic cause worthy of undertaking.

The problem with traffic jams is that roads are a public resource. Public resources are often used inefficiently due to the lack of one “loser” with the proper incentive to act. We’ve already established such an incentive exists for the public authority. Now it’s only a matter of acting on it.

How do we reduce the inefficiency? The public authority needs to introduce new rules (or incentives) on using the public resource. These rules need to assure consumers take into account the complete economic costs when deciding to use that resource, or in this case – roads.

Incentives are a powerful economic tool which I plan to focus on in my posts. In this case the power of incentives is clear. By introducing the proper incentive traffic jams can be regulated and eased. Think of the following incentives for reducing traffic jams:

1. Rush hour toll – If sleeping in is that important to you be prepared to pay a toll for jamming traffic between 8:00-9:00 for example. A simple payment introduced into your decision making process is bound to affect it. If another half an hour sleep is important be prepared to pay 3$ for it. Surely some people will choose to get up earlier and avoid the toll.

2. Early bird bonus – Driving to work early? Receive a small token of appreciation between 6:30-7:30 funded by those rush hour tolls.

3. Another example could be tax benefits for using public transport and more.

Public authorities are constantly trying to battle traffic jams by a variety of means: Better public transport, No car zones, Out of city parking garages, limiting the number of parking spaces and more. These have all been helpful in reducing traffic jams. However, I believe setting proper, monetary, incentives in place will be the most significant step in reducing traffic jams.

Image by Tub Gurnard