time for user pays?

Pay to Pedal? Reflections on an economic cycle
YEW-KWANG NG
April 19, 2010

Time for user pays?
News of a cyclist dying in an accident recently has drawn attention, yet again, to the rising tension between the growing numbers of cyclists and drivers on Victoria's roads. While there are grave concerns for the safety of bike riders on busy roads, many motorists feel inconvenienced at having to share space with cyclists. Some even view them as a nuisance or a hazard.
Increasing the number of safe and adequate bike paths alongside busy roadways is a big step towards a resolution, but this raises the question of who should pay. A recent national survey found that motorists want more bike paths to keep cyclists off the road, but they also want bike riders to pay registration fees to cover the costs.
As an economist, I normally support the principle of user pays. However, I am strongly against charging for bike riding, for reasons discussed below. But first a few words on the user-pays principle.
In its basic form, this principle states that whoever uses something should pay. So cyclists who use bike paths should pay, right? No, not really. It is not that simple.
First, it is often presumed that cyclists should pay because they derive significant benefits each time they use the bike path. This is usually not an appropriate principle. That a person derives benefits from using or doing something is not a valid reason for charging. A person may gain big benefits from walking, sleeping, reading, singing, making love or contemplation, but these activities clearly do not require payment. Put differently, if what a person does imposes no costs or damage on anyone, there is no good reason to charge. We charge users not because of the benefits they derive but because of the costs of providing the relevant items. As a simple first principle, the amount of payment should accord with the costs imposed, not the benefits derived.
Second, the cost of riding a bike is minimal, if not zero. Cycling imposes no pollution or significant noise, and hardly poses a threat to others in the form of accidents (at least in terms of harming others). Moreover, bike paths in Australia are far from congested. Thus, each cyclist imposes virtually no costs by taking an additional ride.
True, there are costs involved in riding a bike: the time to cycle and the cost of the bicycle itself. However, these are already paid for by the cyclist. Therefore, cyclists should not be asked to pay a registration fee.
On the supply side, the provision of bike paths is costly and society may have to recover these costs by charging cyclists. There are, however, considerations suggesting just the reverse.
First, we note that bike riding for commuters is a substitute for driving and I look at the costs of driving relative to cycling. I can safely state that drivers are not charged for the full costs of driving their vehicles. Just like cyclists, motorists pay for the "internal" driving costs in terms of their own time and of the car itself. However, motorists do not pay for the large "external" costs associated with driving, which include such things as increased air pollution, road congestion , a noisy environment and road accidents. The additional costs of road maintenance may also be added, but these are not substantial except for heavy vehicles, which are not a substitute for cycling. On the other hand, if we include the huge costs of road building and extension, congestion costs should be offset, as wider roads reduce congestion.
It is true that motorists pay registration fees and taxes on petrol. However, these are not sufficient to cover these external costs, especially if the serious problem of global warming through greenhouse emissions is factored in.
On this basis, it is logical and highly appropriate to impose higher charges on driving — to get motorists to cover both the internal and external costs of their driving. Aside from charging the usual registration fees, an efficient way to achieve this on a user-pays basis is to impose higher taxes on petrol. Most governments do not do this because it is not popular with voters, who are mostly motorists. In fact, many governments overseas not only don't tax petrol but subsidise it instead. This is highly undesirable.
In many countries, including Australia, most voters are motorists. Except for those who value the time saving from reduced congestion, most motorists see a higher petrol price as detrimental. The individual gain from lower congestion, though substantial, is generally perceived to be much smaller than the loss of extra dollars.
From an economist's perspective, this motorist view is flawed. Though motorists lose more from the higher petrol price than they gain from lower congestion, the net loss is typically less than the higher tax revenue collected by the government. If we take into account the indirect effects of this higher government revenue, there will be overall net gains (at least for cases where the higher congestion or pollution tax is justified). The higher revenue could be used, for example, to lower taxes elsewhere, to improve the road system or to improve the environment. In the end, a typical motorist would benefit substantially from these indirect effects. However, being indirect, these effects and their benefits are taken less into account. Thus, I often tell my students it is only when you celebrate a higher petrol price through higher congestion and pollution taxes that you are really a good economist!
Cycling (and, to a lesser extent, public transport) should be encouraged as a good alternative to driving. Providing incentives for bike use should work to reduce driving indirectly. It is imperative for the Victorian government to provide carefully designed safe bike paths for the growing numbers of cyclists in our community. More importantly, cyclists should not be made to pay for them. Riding a bike is a much better exercise than driving a car. Not only do we end up with a cleaner, less congested environment, we also end up healthier ourselves.
Professor Yew-Kwang Ng is from Monash University's economics department. He was assisted by Dr Rebecca Valenzuela.

ISSUES FOR DISCUSSION
1. Why should users pay for the costs imposed on the society rather than the benefits they derive?
2. Do you agree with the author that the fees and taxes on car driving are not sufficient to cover the external costs? Are you in favour of higher taxes on petrol?
3. Apart from those mentioned in this article, can you think of other possible external costs of cars?
4. What lessons may be learnt from the idea that people tend to take much more account of direct effects than indirect ones?
5. Do you think that you are doing enough exercise?