How Horn Honking Responds to Congestion Pricing

Long ago, economist Arthur Pigou told us how taxes could turn lemons into lemonade. As he explained, using taxes to reduce undesirable conduct increases municipal revenue and decreases the harmful behavior.

Arthur Pigou (1877-1959):

Like Pigovian taxes, congestion pricing has similar benefits.

Congestion Pricing Update

Starting January 5, 2025 cordon-based congestion pricing began in New York City. For specified hours, passenger vehicles paid $9 to enter the tolled area while vans and trucks paid more, and taxis, less.

Road Speed

In NYC’s central business district (CBD), average speeds increased from 8.2 mph to 9.7 mph. Even noting that other cities without congestion prices had an uptick in speeds, still NYC’s was higher. Also, happily (for my trips to NYC from New Jersey) the Lincoln and Holland Tunnels experienced a positive spillover with a 16% speed boost:

Travel Time

Correspondingly, travel time was down. On an annual basis, a daily commuter saved 12.5 hours.

Emissions

Basic air quality did not change but car emssions were down.

Revenue

At $45 million during March, annual revenue should come close to their $500 million target for the year.

Our Bottom Line: Externalities

Pigou advocates would cite the positive externalities of congestion pricing. Others, however, point out the negatives.

Defined as the impact of a policy or agreement on an uninvolved third party, externalities are ripples. While they begin with the original activity, the effect continues. A typical negative externality relates to pollution. Looking at a factory having a contract to produce hot sauce, we can cite how the odor from their hot pepper farms creates allergies among their neighbors. Consequently, local medical spending goes up, children skip school, and adults stay home from work. By contrast, creating countless positive externalities, vaccines enhance health and shrink medical expenses.

Resembling hot sauce and vaccines, congestion pricing has positive and negative externalities. Remembering that economists define cost as sacrifice, time stuck in traffic can be immensely expensive. Reducing that time creates a positive externality. Meanwhile, less honking makes all of us happy:

On the other hand, as a tax that gobbles a larger income slice from lower income individuals, congestion pricing is regressive.

Finally, we should note that differing by days or even weeks, the dates for our results could mean we are comparing apples to oranges (continuing the citrus metaphor with which we began). Still, they convey the impact of congestion pricing. Also, more research will display whether we are dealing with causation or correlation.

My sources and more: Thanks to my Hutchins email for alerting me to the congestion pricing update and leading me to the NY Times Upshot. As for more on Pigou, do take a look at this econlife post and also econlib.