Trunsporf Policy 1994 1 (3) 147-148

Editorial

Willing to pay?

Phil Goodwin

‘rhe ubiquitous phrase ‘willing to pay’ is resonant with ambiguity and power. It is the symbol of the relationship between buyer and seller, and under- pins interactions ranging from face-to-face personal contact to affairs of state among nations. We should remind ourselves that the exchange of cash has not always been the pivot of social and political decisions, and there are crucial areas of human activity which are not, and should not be, dependent on its rule.

But for now, willingness to pay is the order of the day.

The central premise of the Commission of the European Union document on ‘sustainable mobility’ is that low prices of road transport encourage an unbalanced and damaging rate of traffic growth. A committee of the British House of Lords has just published a slim response to the proposals, in a fat volume of evidence. The Lords agree that traffic growth should be curbed by higher prices, using the revenue for improved public transport, better quality street design and traffic restraint. There is little enthusiasm for expansion of road capacity, and some intriguing hints that the powers of local government may need to be strengthened.

In the volume of evidence, a wide range of institutional interests do seem to be ‘willing to pay’ -- though not all for the same reasons. Some motoring organizations express a reluctant acqui- escence in the idea of increased charges, conditional on agreement that the revenue is used to build more roads. On the other hand, local government organi- zations are very much more interested in using increased charges as a way of reducing traffic growth and congestion, with the revenues reinforcing such objectives by improving the quality of alternative methods of transport. Some (but not all) freight operators say they would be quite happy to pay more, provided their competitors also had to do so: they would pass the costs gently on to their customers, and benefit from reduced congestion. The Lords assess the state of public opinion on the

matter as composed of many interacting strands, not all of them consistent:

There is, perhaps, some degree of acceptance that some costs of road use will have to rise, but this will be resisted unless alternative provisions are radically improved.

This is an important diagnosis. Willingness to pay is contingent, and depends on the question paying for what? There was a time when consideration of the explicit allocation of such revenues was considered out of bounds by economists and ministries of finance. That is no longer a tenable position. Road user charges will produce substantial new revenues. Those revenues can be used either to provide capa- city for increased traffic growth, or alternatives to it. One approach offsets the effect of the charge, the other reinforces it. Thus the allocation of revenues is not a peripheral issue, but at the heart of the whole argument.

‘Willingness to pay’ enters into transport policy via another, perhaps less accessible route - the realms of economic theory. Whatever people actu- ally do pay for goods or services, there is an elaborate structure of argument that what they would pay is the best measure of the benefit they receive. It is worth spending a moment on that argument.

Consider the case of a tolled road. Assume that at zero charge it would have 5000 users per hour, at $1 4000 users, at $2 3000 users, and so on until at $5 nobody uses it at all. Everybody pays the same price. But it is clear that they do not all get the same benefit. Nobody is getting $5 of benefit from the road, but 1000 people feel that is worthwhile spending $4, and another 1000 feel it is worthwhile to pay $3. So if they all have to pay $2, the first group is making a personal ‘profit’ of $2 each, and the second group a personal profit of $1 each. Adding up these personal profits gives the measure called consumer surplus. The benefit to the user, in fact, is the bit that is not paid for.

0’967-070X/94/030147-02 @ 1994 Butterworth-Heinemann Ltd 147

Willing to pay?: P Goodwin

One of the unfortunate political paradoxes of road user charging is that the more clearly a market is introduced, the more likely it is that what people do pay will be treated as the measure of benefit, instead of what they would be willing to pay. This is already the case in privatized transport operations, because it is what people do pay that the company can collect, use to pay costs, and make a profit for shareholders. The uncollected benefit to customers appears on no balance sheet. For most competitive companies consumer surplus is a fancy of no importance, though an omniscient, omnipotent monopoly might try to capture much of it for the shareholders by seeking to charge a different, maximum, price to each customer.

Luckily, omniscience and omnipotence are characteristics usually thought to be confined to a realm other than Caesar’s, though if some of the claims for new transport informatics are to be believed, a private toll-road operator might come uncomfortably close. The point is, the argument for charging for road use is not at all the same as the argument for privatizing roads. The former should lead to a broader and more comprehensive base for sensible policies. The latter narrows the criterion of success and (except in the least realistic of text- books) cannot be assumed to lead to maximum benefits. The last thing we want is to create a new sector of the economy with a powerful financial interest in encouraging traffic growth.

Fariba Alamdari and Damian Brewer consider the case of the prices charged for air travel. It is surprising that so little attention has been given to the policy levers that might be used to ensure that airlines - or rather, their customers - are willing to pay for the pollution they cause. The authors suggest using Swedish emission taxes as a model: this would result in higher charges, and revenues which could be used for modernization of aircraft engines and improvements to air traffic control.

By contrast, Harrison Fraker, Daniel Marckel, Mark Tambornino and Joseph Lambert treat an area of transport policy where willingness to pay seems to have least relevance - the development of pedestrian neighbourhoods. This is not to say that such initiatives are cost-free, of course, but it is remarkable that urban pedestrianization in many countries has proceeded by reference to design, cultural, political and indeed commercial objectives, but hardly at all involving economic evaluation or

pricing as an important lever. Design has always been crucial in real policy, but often almost com- pletely isolated from formal analysis.

Robert Cervero brings empirical evidence to bear on the relationship between transport policy and the way cities develop. Public transport services will be required to play a greater role in the future, but this does not mean simply trying to cater for current travel patterns; those patterns will themselves be influenced, over time, by the transport infrastructure in place. The Bay Area Rapid Transit system in California has taken criticism, partly because of exaggerated claims that were made at its inception. But there are interesting new patterns emerging of high levels of use by residents living close to the stations: Cervero argues that this provides significant potential for improvement, if employment is also located close to stations, and motorists and parkers are not under-charged for their own trips.

Peter White addresses the parallel question of privatization. The British experience is that priva- tization and deregulation so far have indeed been associated with significant reductions in operating costs, and increases (in some areas) in vehicle miles run. But prices have not been reduced, instability of services has been a significant problem, and above all demand has fallen. Experience in the bus industry does not give great confidence that rail privatization will of itself enhance the evolution of a sustainable transport policy, though there may be more advantages on the freight side than for passengers.

Finally, Stephen Peake and Chris Hope take a longer term look at the evolution of sustainable mobility. They use the device of alternative scenarios, and explore the need to ‘decouple’ economic growth from transport growth. Transport, by and large, is only a means to an end: like energy, the less of it we use to achieve any given objective the better. Within the transport sector, energy is used to move mass, and it is therefore interesting to think of a simplified measure of ‘gross transport intensity’ in which the mass of people and the mass of freight (and the respective vehicles) are added together: similarly, in the previous issue of Transport Policy readers may remember McKinnon and Woodburn’s argument that energy savings on freight transport due to retail location could be more than offset by increased passenger transport in shopping by car.

148 Transport Policy 1994 Volume I Number 3