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.