Parking Problems

by Elaine Schwartz    •    Aug 16, 2010    •    897 Views

Parking expert Professor Donald Shoup has identified a traffic problem with implicatons far beyond city streets. Essentially he says that cheap city parking is really rather expensive.  Throughout parts of NYC, for example, drivers can select meters that might require $1.50 an hour or a free side street. With so low a price, demand is considerable and there are few empty spaces. Consequently, drivers create pollution, exacerbate congestion, and generate pedestrian challenges while searching for spots. Also, land used for parking might have a better alternative function. Explained economically, while “parkers” pay little, the cost (sacrifice) for everyone else is high.

One way to solve the problem of underpriced public commodities is to charge more. San Francisco has begun to experiment with variably priced meters and parking lots. Spaces with higher demand will become more expensive. The result? Fewer people will demand them and negatively impact the neighborhood. Correspondingly, as suggested by George Mason economics professor Tyler Cowen, “…if we are ging to wean ourselves away from excess use of fossil fuels, we need to remove current subsidies to energy-unfriendly ways of life.”

One concern: Should we care that more expensive parking is regressive? Other costs?

The Economic Lesson

An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, as with cheap parking, we call the result a negative externality. A benevolent impact on an uninvolved third party is called a positive externality. A community experiences the positive externality of flu vaccinations.

How to diminish a negative externality? Increase its source’s cost. How to encourage a positive externality? Make it cheaper to create.

One Response to Parking Problems

  1. Dave says:

    Regarding Elaine’s piece on Donald Shoup: There are two questions that have yet to be answered. One, does variable pricing work everywhere or only in big cities where finding parking is always difficult? And what effect does variable pricing, which may be confusing and annoying to customers, have on retail and restaurant sales where it has been employed? Reducing the amount of circling by people looking for parking spaces is good; but what if potential customers are driven away by the uncertainty of parking rates?

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