Toll Roads

One of the first principles in economics is that incentives matter.

When most people think of incentives, they usually think of the price of a product or service. However there are many other incentives. One is time. For example, the first ever economics joke is that there is no free such thing as ‘free lunch.’ Meaning that even if someone wanted to give away free lunch, for example out of altruism, that it would be impossible because it would quickly attract a line. In fact even for the first person who might avoid the line, there would be the risk that the food would make you sick, or was given away for free because it didn’t taste very good.

There are many other incentives as well. One of them is related to pollution. All things equal, people avoid pollution, and prefer clean air and water. Especially parents of young children. Did you know that one of the biggest risk factors for autism is growing up near a major road?

Today I am reminded of a really clever incentive called a highway toll. This is something that gets economists really excited because it actually solves a lot of problems all at the same time.

The first incentive is that it encourages someone to build the road. This is pretty obvious. However urban planners also know that a road ends up flattening the transportation gradient, making it quicker to escape the city, and quickly encourages the city to flatten, aka spread out. So the toll helps solve this problem, because generally speaking dense cities are preferable to really spread out ones for a number of reasons. Another problem that a toll solves is that it lets people travel on a road without a lot of traffic. Meaning, the people who choose to use a road get more utility from the road because it isn’t so congested.

I am currently driving through Turkey and learned about the E87 highway project. One of Erdogan’s big investments in Turkey was this toll road. The pricing on it makes it a very tricky choice for most economic investors. However, I am really happy to see that economists have a big influence over Turkey’s urban and regional planning efforts.

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