Traffic Congestion

Chances are, you’re reading this while stuck in traffic.

In 2010, a traffic jam on a highway near Beijing kept cars stuck in traffic for more than a week (9-12 days
according to different sources). The traffic jam itself went on for 97 kilometers. The locals sold food and
water to the drivers for prices that were 10 and more times higher than normal1. One might argue that this
was a special case but everyday statistics also aren't very comforting to the Indian urban dweller. Traffic
congestion costs four major Indian cities Rs 1.5 lakh crore a year according to an article in The Times of
India in 20182.

Road congestion is a significant example of a country's market failure. Instead of the road serving as a
tool for better and more efficient transportation, the need for better quality and an adequate number of
routes has resulted in the existing roads becoming a beacon of constant congestion, leading to market
failure.

Every country's citizens dread traffic congestion because it causes unnecessary delays in their daily work
lives. As a country with such a large population, India is the most common victim of market failure,
which the commoner knows as the dreaded traffic jam.
Even with over 599 National Highways (Ministry of Roads, Transport and Highways), and the second
largest road network in the world spanning more than 5.3 million kilometers, about 90% of transportation
related to passengers and industries are carried through roadways in India and its residents remain
infamous for being ‘late’ to wherever they travel, primarily due to road congestion.

Because there is no market for road space, traffic congestion occurs. Every vehicle on the road contributes
to a negative externality. Each vehicle takes up road space, increasing traffic congestion and delaying all
other motorists as road space is in short supply. It is currently allocated through queuing or First Come,
First Serve. If the pricing mechanism is used to allocate road space, there is the potential for an allocation
improvement. Roads are distinguished from other public goods by their economic characteristics. Road
use is a competitor in consumption and is also excludable with adequate pricing costs.

The Problem with First Come, First Serve

Individual incentives for rational behavior often do not lead to collectively rational outcomes in market
failure. In other words, while each individual makes the best decision for themselves, the group suffers.
Because road space is a limited resource, the more private individuals use it, the less is available for
others.

The current system of allocating road space leads to market failure because supply and demand for road
space do not equate. There is an overabundance of demand for road space. CBA does not advocate
increasing supply indefinitely. Because of the high latent demand for road space, the ability to solve the
problem by increasing supply is limited. More of the latent demand for road space becomes actual
demand as the supply of road space increases. It lessens the efficiency of increasing supply.

The market fails because there is a disparity between the private cost to the motorist and the societal cost
of the motorist's actions. Consider a road with a fixed beginning and ending points. The average or
marginal cost can be used to assess the impact of a new driver. As the number of drivers increases, so
does the travel time and scarcity for road space.
In other words, adding one more driver increases travel time. This is referred to as the marginal or social
cost. For each additional driver on the road, the marginal cost is added to all drivers. As a result, as the
number of drivers increases, so does the marginal cost3.

Congestion incurs external costs, such as increased travel time and increased business expenses;
ambulances, police cars, and fire engines are finding it more difficult to operate effectively; pollution,
such as air and noise pollution, has increased, increasing the likelihood of more accidents and more
anxiety for motorists, cyclists, passengers, and pedestrians.

India is notorious for its traffic congestion, specially in metropolitan cities of Delhi, Mumbai, and
Bangalore - Quite evident by this hilarious tweet to show how it's quicker to walk 8km, covering the same
distance via a car - In bangalore4.
What does the Economist stuck in Traffic say?

Figure 1 Road transport, congestion and economic theory

Economic theory can be used to analyze the issues involved in traffic congestion. Figure 1 depicts the
relationship between travel costs and traffic flow along a specific route. The essence of this theory is
based on the fact that when driving, a driver only considers the marginal private cost (MPC). It is the cost
directly attributable to himself/herself, such as time, fuel, and vehicle maintenance, rather than the total
cost of the journey, which may include societal costs such as noise pollution, air pollution and the
collective time lost due to traffic congestion. When these are added to the private costs, they are referred
to as the marginal social costs (MSC), with the difference representing the externality imposed by the
motorist.

In outlining the theory, congestion is assumed to be the only externality encountered when traveling. The
graph depicts the demand for travel along a specific stretch of road over time. There is no congestion up
to a flow of traffic F0, and thus no divergence between MPC and MSC, though in everyday life, a
situation such as this only applies to small volumes of traffic.

Congestion appears as traffic flow exceeds F0, and there is a glaring gap between MSC and MPC.
Assume that the demand for travel on this specific route has the standard shape ( the D figure that can be
seen on the graph), which measures the marginal benefit. In that case, the intersection of the demand
curve and the MPC curve at F1 will determine traffic flow, and the private cost to the motorist will be b.
At an F1 flow, the external cost, which the motorist does not consider, is ab (the difference between the
MPC and MSC). This means that resources could be allocated more efficiently and that individuals are
making more journeys than they would if they were aware of the social costs5.

Did the Government Hear Him?

In 2005, the government formed a committee chaired by Shri S. Sundar, Former Secretary (MoST), to
deliberate and give recommendations on establishing a dedicated body for road safety and traffic
management. The Government of India has committed to the following measures in order to improve road
safety significantly:
1. The government will step up efforts to raise awareness about various aspects of road safety, the
social and economic consequences of accidents that occur on the road, and the solutions for the
growing threat of road accidents. This would enable stakeholders to take an active role in
promoting road safety.
2. The government will take steps to review safety standards of the design of urban and rural roads
and bring them in line with international best practices while keeping Indian traffic conditions in
mind. The continued use of Intelligent Transportation Systems (ITS) within a national framework
will be encouraged to establish a safe and efficient transportation system6.

However, these measures are not sufficient to deal with traffic congestion effectively. Here is why:

If the government increases the supply of road space by constructing more roads, more drivers have the
space and ability to drive, due to which road space demand continues to grow. Demand shifts to the right,
but congestion remains! The extent of shift of supply needed to truly deal with traffic congestion and its
after-effects of increasing demand would be enormous and practically unfeasible with the current
resources and technology. There are also enormous construction and opportunity costs! In addition, there
is a significant time lag between planning and availability.

In addition to that, simply increasing capacity of major congested roads would also be counterproductive
as the added burden would just spill over to smaller interior roads, which are even more incapable of
handling heavier flows of traffic during peak hours.
Green Light: Proposed Solutions

Lower the demand for road space; Demand for road space can be reduced by:

1. One way is to reduce car ownership or decrease car usage.

Figure 2 Lower the demand for road space

2. A road pricing system can be put into place with people being charged based on the length of
the road or based on the duration for which they use the road - which would require a huge
technological investment8. It is one way of ensuring that those who cause the added costs pay for
them, so that only those who are willing to pay the price are allowed to continue circulating
during peak hours. This contributes to a net reduction in traffic. Description of the measure Road
pricing consists of levying a fee to circulate in or enter specific streets or areas during times when
there is congestion there. The purpose is to make individuals circulating in a congested area see
that their presence there imposes a cost on the other vehicles circulating in the area. In other
words, internalizing the externality. Certain drivers will not be willing to pay the price of
congestion and will seek out other alternatives, either using other modes of transportation or
driving at times when the fee is not charged. This regulates the use of public roadways by means
of a market tool rather than a regulation imposed by the authorities7.
This was attempted in April 2003, when the Mayor of London introduced a £5 per day congestion charge.
In July 2005, this was raised to £8 per day.
Transport for London estimated that the impact on traffic flow was a reduction of 50,000 cars per day.
It also estimated that:
● Journey times are 15% faster
● Bus journeys are up by 15%
● Taxi journeys are up by 20%
● Cycle usage is up by 30%
Source, Transport for London, February 2004

However, critics have argued that:

It was very costly to introduce. Revenues from fines were much lower than expected. There were serious
technical problems with the number plate recognition software.
It is also unfair on those low paid that have to drive into London to work, such as key workers, such as
nurses, ambulance drivers, and the police. The charge is regressive in its impact, which means the poor
pay proportionately more of their income on the charge than the rich. Many businesses have also suffered
as people stop shopping in London.
Despite the criticisms, there were plans to extend the charge zone, but in 2008, the Mayor of London
decided to abolish the western extension of the charge zone. In addition, plans for a congestion zone in
Manchester were shelved after local residents voted against it1.

However, grass root level measures, with successful planning and efforts are required to successfully
implement these solutions, to have its effect on the entire country. It is necessary to use the highest quality
of raw material to maintain longevity of the roads.

3. Bettering public transport and schemes like Bus Rapid Transport - and its proper implementation
can be very helpful. The cost of public transport in India is less in comparison to private
transport, and helps to transport more people, while occupying less ‘area.’
Turn About
Congestion on the road is an example of a daily market failure. While it is a widespread issue, the
situation has remained consistent. In fact, in countries such as India, traffic congestion has gotten worse
over time.

To help reduce congestion, the government has tried a variety of schemes and policies. However, it
appears to have made little difference in the amount of distress experienced by the country's citizens. One
issue with schemes to change people's behavior to achieve desired results is that the opposite can occur,
and people behave erratically. For example, the cameras that capture speed have been positioned at
regular intervals to reduce the speed of the cars on roads and may instead encourage drivers to speed up
between cameras8. Hence, even though there are government schemes aimed at reducing market failure,
they reverse the effect and worsen the situation for everyone. Clearly, much research is needed to find a
realistic and effective solution to traffic congestion.

In the meantime, hope you are close to your destination now.

 References

1. https://www.mapon.com/us-en/blog/2014/10/20-amazing-facts-about-traffic-and-traffic-jams
2. https://timesofindia.indiatimes.com/india/traffic-congestion-costs-four-major-indian-cities-rs-1-5-
lakh-crore-a-year/articleshow/63918040.cms
3. Fahey, C. (2004). AN ANALYSIS OF ROAD PRICING AND A STUDY OF ITS FEASIBILITY ON
THE M50. SER Essays. https://www.tcd.ie/Economics/assets/pdf/SER/2004/Colm_Fahey.pdf
4. https://www.timesnownews.com/viral/walking-8-km-takes-just-1-minute-longer-than-driving-
amid-rain-in-bengaluru-shows-google-maps-article-93901486
5. (n.d.). The economic theory of traffic congestion. anandres.esc.edu.ar.
http://www.sanandres.esc.edu.ar/secondary/economics%20packs/microeconomics/page_172.htm
6. https://morth.nic.in/national-road-safety-policy-1
7. Bull, A. (2003). TRAFFIC CONGESTION. THE PROBLEM AND HOW TO DEAL WITH IT.

8. (2020). Road Congestion. Economics Online.

https://www.economicsonline.co.uk/market_failures/road_congestion.html