The New Manhattan Toll Rates: Efficient Policy, or Just Another Boondoggle?

The Metropolitan Transportation Authority in New York (MTA) has announced a set of tolls for vehicles on streets south of Central Park.

• Passenger vehicles: $15
• Small trucks: $24
• Large trucks: $36
• Motorcycles: $7.50
• Taxi drivers: $1.25 per ride
• Uber, Lyft, other ride-shares: $2.50 per ride

The economic reasoning for charging tolls in Manhattan is simple; open access to the roads of Manhattan leads to a Tragedy of the Commons. The ability of everyone to use streets at zero money price leads to overuse and under-maintenance of these roads. Overuse of city roads causes traffic congestion, wastes gas and time, and increases pollution. In other words, open access roads are similar to public goods- once built roads are free to everyone and the use of any road by one person deprives no one else use of these goods (inclusive in supply and nonrival in consumption, respectively).

New York City streets are fully public at 3:00 AM. Use of NYC streets during daylight hours is rival in consumption. The solution to Tragedies of the Commons with roads is to charge each vehicle owner for the full additional cost of each person using each road1. The fee schedule listed above specifies different charges for different vehicles. Their is an economic basis for charging higher tolls to large trucks. Heavily laden trucks create more stress fractures in roads; this increases road maintenance costs.

What is the economic basis for charging so much less to taxi drivers? There is no clear reason to assume that Ubers and Lyfts or passenger vehicles impose higher marginal costs for road maintanence or congestion and pollution than do taxis. Charging $15 for passenger vehicles increases demand for taxis, Ubers, and Lyfts. Charging $2.50 for Ubers and Lyfts discourages supply of Uber and Lyft services.

The MTA appears to be helping taxi companies to gain some monopolistic profits. There is a long history of companies attempting to monopolize metropolitan transit. A century ago the American Electric Railway Association (AERA) lobbied to drive jitney companies into bankruptcy. Jitney's were small busses or vans which provided services that were more flexible than the bus lines, but not as convenient as taxi cabs. As jitneys were shut out of markets for urban transit, electric street cars and taxis faced less competition, gained market share, and could each increase their fees.

The advent of Uber and Lyft services broke the monopolistic hold that taxi companies once had over metropolitan transit. There are real, and fairly obvious, problems with allowing everyone open access to lower Manhattan roads. However, introduction of a fee schedule toll schedule that clearly favors taxicab companies just creates another economic problem. If the Metropolitan Transit Authority was really concerned with the welfare of New York City residents and visitors they would charge all auto drivers the same rate. This is an example of regulatory capture of policy by private interests, aimed at enhancing the monopoly profits of these interests. Economically speaking, monopolistic profits are no different than theft. This is not just a matter of Manhattan residents and visitors being unfairly overcharged by taxis, monopoly prices and profits are economically inefficient.

Originally published at "On the Other Hand..."