Cars, Parking and Planetizen: A Mess of Externalities

Planetizen has two early July 2010 essays and two comments on road and parking externalities and subsidies that are as good examples as any of (a) how fundamental the concepts of externality and subsidies are to evaluating public policy and (b) how hard they are to explain, or even understand.

Planetizen blogger and Law Professor Michael Lewyn goes first by arguing that a minimum parking requirement is a harmful externality, which at the end of the day worsens congestion, pollution and public health.  That he mistakes a distortionary rule for an externality is confusing (there is probably a social cost to the rule but it is not an externality in his example), yet he makes the useful point that even well-meaning regulations can be bad.  His more serious fault is clarifying neither how nor when.  Is any parking regulation a net social burden or only 1.75 spaces per Jacksonville, Florida apartment?  One can be excused for hoping that some regulations, even of parking, are beneficial on net, but his essay won’t help you figure out which, or by how much.

A few days later, Planetizen blogger and Reason Foundation Director Sam Staley argued that road taxes (and by extension public regulations) are not external costs because they are not, by the rules of democracy, involuntary.  In a comment, Todd Litman disagrees, in a way, saying a distortion is a distortion, even if the possibly ignorant majority approves.  (He could but does not clarify that one can have distortions that are not externalities.)  Roads are not fully financed by user fees, and thus user decisions are distorted in favor of cars.  In the next comment, Charles Siegel agrees, further claiming that neither roads nor parking are public goods and thus should not be funded through indirect taxes or regulations as, again, doing so amounts to distortive subsidies.

Part of the confusion here is because this discussion seamlessly conflates two categories of policy problems: One determining the right amount of a public good, such as of legal rules, and the other how to efficiently pay the bill (where the second is considerably complicated by the first).  Litman and Siegel don’t see a distinction as, here anyway, they define roads and parking spaces as purely private, no different than a good meal.  Each user uses it all and should pay accordingly.  Any deviation from this is both unjustified and has social efficiency consequences (which Lewyn misidentifies as a series of externalities).  Staley exaggerates the difference, almost implying they are pure public goods that can only be financed by indirect means subject to majority rule.

Public regulations have many of the technical properties of public goods, and I very much doubt — though I might well be wrong — that Lewyn, Litman or Siegel feel that either roads or parking should be either fully private or completely unregulated.  How much then?  I don’t know but either do they or Staley (as that would require the measurement of individual shared benefits at any price point, and then their aggregation, neither of which are observable*).  How, then, to pay?  Like every dime-store economist, Staley included, I agree users should fully pay when the private benefits of use are easy to measure (unless the goods or rules have equity goals).  In many cases, that applies to roads and parking.  But roads and parking also have public regulatory and investment components, and like it or not the implications for how much and how to pay then get messy.

Put another way, although it advertises otherwise, this Planetizen debate of how to pay for roads or parking has almost nothing to do with externalities as defined by wikipedia (or Pigou)**.  It is almost all about when subsidies are justified or, more to the point, when car use should be discouraged.

Some of these participants feel roads and parking are unduly subsidized, which is to say subsidized at all.  Litman has literally written an encyclopedia trying to nail this down, to society’s great external benefit, but he has yet to convince the majority to fund the system entirely via user fees, if that is indeed what he recommends.  Staley seems more satisfied with the status quo — but in guessing that, I digress.  All I should conclude is that we ultimately have no clear means to determine which side is more right outside the great imperfections of the political process.

p.s. After I wrote this post but before I got around to publishing it, because I more or less had stopped using this blog to think out loud, there were a dozen or more extensive comments on the Staley entry.  Some concerned definitional issues and many staked out normative turf.  It’s an interesting example of the ways in which reasonable people disagree on normative grounds about what are essentially positive questions.

*Since when are parking or road use unobservable?  I’m only referring to the public goods part of each here, which include option values, congestion burdens, and the like.  Read Shoup (2005), The High Cost of Free Parking, APA. And if he left it out or you just want another example of very clear thinking with many fewer words, but which just same concludes that public goods are harder to provide and fund than one would hope, and you haven’t yet, read Samuelson (1954), “The Theory of Pure Public Goods,” The Review of Economics and Statistics.

**Of course, traffic-related congestion and pollution are classic externalities, which I’m ignoring for space.  If you think even just the first part of that isn’t tricky to price, see Diamond (1973), “Consumption Externalities and Imperfect Corrective Pricing,” Bell Journal of Economics.

***If you’re done reading those, a much longer take on all this is Crane (2006), “Public finance concepts for planners.”  I’m revising this for a book on infrastructure planning, and will update this then.