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Should We Try to Get the Prices Right?

UCD-ITS-RP-00-08

April 2000

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Suggested Citation:
Delucchi, Mark A. (2000) Should We Try to Get the Prices Right?. Access Magazine (16), 10 - 14

There is considerable interest these days in "getting the prices right" in transportation. Some environmentalists and supporters of mass transit believe the "right" prices will induce a lot of people to switch from cars to public transit. So they advocate a variety of additional charges on vehicles, fuel, road use, emissions, and so on. Some economists believe that the "right" prices will lead to an economically efficient and socially desirable use of transportation modes and fuels.

In a society seeming to become ever more leery of government regulations, and concomitantly more enamored of "market" solutions to difficult social problems, there can be strong appeal to getting the prices right in transportation. Arguably, if we can estimate and implement transportation prices intelligently, without slighting efforts towards important social objectives that are not well addressed by pricing, then perhaps we ought to try to "get the prices right." But that's a big "if." For three reasons, I believe we should be wary of embracing pricing as a solution to transportation problems:

Poor pricing schemes might do more harm than good. Pricing is difficult. It's difficult to estimate the "right" prices, and harder still to implement "right" pricing. So-called "second-best" solutions can leave us worse off than we'd be with no change in our current pricing system at all. Pricing might surprise and disappoint some of its advocates. Contrary to expectations, the use of pricing to "level the playing field" will induce people to shift from transit to autos, because presently the field is tilted in favor of public transit. Those who feel it important to get people out of their cars should focus on improving the quality and reducing the cost of alternatives. Pricing might detract from important noneconomic concerns. In matters as complex and socially important as transportation, we care about a good deal more than economically efficient pricing, even broadly defined. We care about distributive fairness, equal opportunity, uncertainty and risk, ecological stability, future generations, quality of life, and so on. We should not subordinate or abandon these concerns to efficient pricing.