LETTER FROM THE EDITOR:A free market bias

This newsletter has a free market bias, sure. That's because it seems to us that the highway business is ripe for the kind of entrepreneurship, consumer choice and accountability that the marketplace brings to most of the rest of the economy via competitive capitalism. And technology gives us the opportunity. Until electronic toll systems were developed, tolls were only practical on large discrete facilities such as major bridges and tunnels or on very large expressways without too many interchanges because of the need to concentrate payment points (toll plazas) to keep collection costs down. Even so it has been common for collection costs at attended toll plazas to absorb 10% to 20% of toll revenues as compared 5% to 10% for the administration of a highway-dedicated fuel tax.

Direct prices for services make most sense when they are flexible since they can be used to transmit cost information and incentives to consumers, encouraging use when supply is plentiful while ensuring that only those who most need it, as reflected in the willingness to pay, get it when it is scarce. Most urban highway facilities have heavily-peaked demand (rush hours) but pretty fixed capacity so the case for flexible pricing to gain efficient use and transmit real cost information to users is very compelling. That's congestion pricing. It's not radical. It is normal. It's the way we get our food, our housing, telephone service, household appliances, air travel, gasoline, computer memory, hotel rooms etc. Electronic (e-) tolling offers the technological means to collect tolls competitively with fuel taxes while offering the opportunity to adjust toll rates according to traffic conditions so as to offer motorists choices. When speed and punctuality is important motorists should be able to buy it — the case for toll express lanes. It is a win/win deal, providing a service for which the demand is indicated in the frustration of most who experience stop-&-go traffic, and providing a revenue stream for the needs of suppliers of highway service.

Now flexible e-tolling can be practiced by any kind of highway agency. It is difficult for government owned highway agencies, which aren't used to acting like flexible businesses. Government agencies are constrained by all kinds of interest groups, by notions of treating people equally (one service for all), of giving special consideration to the poor. They are easily gridlocked politically. It seems to us that managers acting in a business setting will be more likely to do flexible pricing. And sometimes be forced to do it by the pressure to maximize profit. Indeed the pioneers were for-profit companies (1) SANEF on the A1 toll road north of Paris with time-variable tolls on Sundays (2) 91-Express CA the first to have hourly day by day schedules of toll rates (3) SAPRR south and east of Paris where two different radial routes are using variable toll rates to balance traffic flows (TR#8 Oct 96 "Le Prix de Congestion et un Concession pour les Earlyrisers"). But of course there are public sector moves here in the same direction: (4) I-15 by the San Diego Assoc of Govts (5) METRA on the Katy Fwy in Houston TX (6) toll bridges in Lee Co FL (TR#11, Jan 97) (7) Maine Turnpike. And lots of feasibility studies (NYC, n.CA), modelling (NYC), focus groups (Twin Cities, greater LA area) are being conducted as first steps to congo pricing. Almost forgot — the Toronto tabloids "killer highway" 407 in Toronto which will have a time-of-day toll rate schedule when it opens... about April 1? It has a management structure so complicated in interweaving companies and government agencies it really deserves to spawn a new Canadian adjective. Take your pick: privic or pubate.

The dozens of US, Japanese and European toll authorities, while failing to match the complexity of Ontario 407's organization chart, have great diversity of management power and culture. Some are quiescent, others quite entrepreneurial. They vary enormously too in customer orientation and local public esteem, as do state highway agencies. A couple of readers have told me they think the problem is a decline in the ethic of 'public service' in public agencies. I'm sure you can make that kind of a case for one or two agencies, but I'm wary of generalizing it across the board. There have always been good guys and bad and many in between, and you find similar mixes of vice and virtue in the corporate world. And of intelligence and energy versus stupidity and sloth. You find mixes within individuals! But before we degenerate completely into relativism let's end it.

We are forced to theorize — build models and categorize — by the need to summarize to make sense of real world complexity. And it seems generally to be logical to expect that markets will work best with the major actors being competitive for-profit investor-owned companies but when the public sector breaks a paradigm or transmogrifies itself a newsletter must say: "Gee! Heck, that's great!" And report it all.