Louisville’s experiment in transportation economics
By Joe Cortright
As we pointed out yesterday, there’s some initial visual evidence–from peak hour traffic cameras–suggesting that Louisville’s decision to toll its downtown freeway bridges but leave a parallel four-lane bridge un-tolled has produced a significant diversion of traffic away from the freeway. Perhaps without knowing it, Louisville has embarked on an interesting and useful economic experiment.
One of the big questions in transportation economics is what value people attach to travel time savings: How much is it worth to me to shave five or ten minutes off my daily commute? There are a lot of theoretical arguments about the value, but there’s nothing quite like an actual experiment which gives people real world choices and observes the results. And that’s just what Louisville has done. If you’re traveling across the Ohio River between Jeffersonville, Indiana and Louisville, Kentucky, you have a couple of choices: you can pay between $1-$4 and drive across the shiny new multi-lane I-65 bridges on the freeway, or you can use the old US 31 route, and take the 1930s-era Second Street Bridge for free.
At least as of last Tuesday, it looked like a lot of people were choosing the “free” way, instead of the “freeway.” The following photographs were taken by Louisville’s traffic cameras at shortly after 5 o’clock local time on January 17th. The lefthand photo shows the new freeway bridges; the right hand shows the Second Street bridge.
Toll: $1-$4.
Free.
“I just take Second Street,” said Tijuan Howard, who lives in Louisville. “That’s just common sense. And whatever way you need to get to Jeffersonville, you can just take the back streets. People are going to figure that out. It’s not hard.”
The choices that actual travelers like Mr. Howard make will tell us a lot about how much monetary value people attach to travel time savings. In traffic forecasting parlance this decision comes down to the “value of time”: how much do travelers value their time on an hourly basis. For a $3 toll to justify a two minute time savings, one’s time has to be worth about $90 an hour; to justify a $4 toll for two minutes of time savings, one’s time has to be worth $120 an hour. If you face the standard $3 toll, and your time is worth $15 an hour—a standard estimate in travel time studies—you’d wouldn’t find it economically worthwhile to use the toll crossing unless it saved you about 12 minutes of travel time.
This calculus suggests that is very likely that the tolls on the I-65 bridge will prompt many motorists to pull off the freeway and use the free crossing. Of course, if a large number of travelers exit the freeway, and take the parallel Second Street route, that will produce congestion, and increase travel times for those avoiding the toll. The limiting factor on this toll-related diversion is likely to be the capacity of the Second Street Bridge (which has two lanes in each direction) and the capacity of the surface streets connecting the Second Street Bridge to I-65 on each side of the river. We would expect delays to increase on this route at peak hours.
We can estimate how long the delays on the Second Street Bridge route are likely to be, given the value of commuter time. If commuters value their time at $15 per hour, then those facing a $4 toll would be willing to put up with a about 16 minutes of delay (4/15*60 = 16) before they’d be willing to pay a toll to use the bridge; those who had to pay a $3 toll would be willing to tolerate about 12 minutes of delay. Many motorists will attach value to the convenience and certainty of the tolled route, but it would be surprising if the diversion to the Second Avenue Bridge didn’t result in delays of ten minutes or more compared to using the tolled I-65 crossing at rush hours.
At off-peak hours, the diversion rate is likely to be even higher. Because the toll doesn’t vary by time of day, I-65 users will have to pay the same toll regardless of when they cross. While it might be a comparatively good deal to pay the toll during rush hours when the Second Street Bridge is crowded, at off peak hours, the additional time penalty will be closer to the traffic-free two minute estimate provided by Google Maps.
There’s one more wrinkle here as well: The $2-$4 tolls are for cars; medium and heavy trucks pay much higher tolls–up to $10 to $12 for large trucks. While for some kinds of deliveries, the time savings may be worth the cost of the toll, in most cases, neither shippers or truck drivers are willing to pay extra to save just a few minutes. And the same math applies to trucks as to cars. We can assume that the value of time of a truck is in the $35/hour range (reflecting the compensation of the driver and the operating cost of the truck itself). If the toll is $12, a commercial driver will find it more profitable to get off the freeway and use the Second Street Bridge rather than pay a toll, even if the trip takes as much as 15 or 20 minutes longer than the freeway. According to the project’s Supplemental Environmental Impact Statement, the Second Street Bridge carried about 22,000 vehicles per day, and was operating at about 58 percent of its capacity in 2010.
In addition, many if not most commercial drivers have no financial or operational advantage from using tolled roads. Independent truckers and many shipping companies are paid a fixed amount per load (based on distance) and as long as they meet delivery deadlines, don’t get paid any extra for time saved in transit. Effectively, an independent trucker may have to pay the toll out of his profit on the trip. Unless he’s under considerable pressure to make a delivery deadline, he may prefer to spend an extra few minutes taking the free route, rather than pay the toll out of his own pocket. A study prepared for the Transportation Research Board concluded:
“ . . . truck drivers stated an extremely low willingness to pay even a token toll for different time savings scenarios . . . a large cross section of the trucking business cannot monetize toll road benefits.”
Also, unlike car traffic, which is highly concentrated during morning and evening rush hours (and in the case of the I-65 bridge, very much a morning-southbound, evening-northbound peak), truck traffic is much more evenly spread throughout the day. Proportionately more trucks will be crossing the river when the Second Street Bridge is less congested, and therefore will be a more attractive route.
There are more than a few ironies to this situation: First, after spending a billion and a half dollars on the new Lincoln Bridge, and doubling the number of freeway lanes crossing the river on I-65, the new bridge will likely carry fewer vehicles for the foreseeable future (through at least 2030) that it did in 2005. Second, a project avowedly designed to reduce congestion will actually lead to regular congestion of the Second Street Bridge—which is expected to see an 20 percent increase in traffic according to the project’s own estimates (but we believe this figure is probably a substantial under-estimate). What toll diversion—and the permanently depressed level of traffic predicted for the I-65 bridges signals is that a significant fraction of bridge users don’t value the time savings provided by the project to pay for them—even though tolls cover less than half of the cost of the bridge improvement project. In short, this is clear economic evidence that the project isn’t economically warranted.
By tolling some of the bridges across the Ohio, and leaving others toll-free, Indiana and Kentucky are conducting a real-world behavioral economics experiment. Over the next few months we’ll be watching to see how travelers respond to the financial incentives they’ve been provided, and how their travel behavior shifts in response. The results will be interesting.
Louisville’s experiment in transportation economics
As we pointed out yesterday, there’s some initial visual evidence–from peak hour traffic cameras–suggesting that Louisville’s decision to toll its downtown freeway bridges but leave a parallel four-lane bridge un-tolled has produced a significant diversion of traffic away from the freeway. Perhaps without knowing it, Louisville has embarked on an interesting and useful economic experiment.
One of the big questions in transportation economics is what value people attach to travel time savings: How much is it worth to me to shave five or ten minutes off my daily commute? There are a lot of theoretical arguments about the value, but there’s nothing quite like an actual experiment which gives people real world choices and observes the results. And that’s just what Louisville has done. If you’re traveling across the Ohio River between Jeffersonville, Indiana and Louisville, Kentucky, you have a couple of choices: you can pay between $1-$4 and drive across the shiny new multi-lane I-65 bridges on the freeway, or you can use the old US 31 route, and take the 1930s-era Second Street Bridge for free.
At least as of last Tuesday, it looked like a lot of people were choosing the “free” way, instead of the “freeway.” The following photographs were taken by Louisville’s traffic cameras at shortly after 5 o’clock local time on January 17th. The lefthand photo shows the new freeway bridges; the right hand shows the Second Street bridge.
The choices that actual travelers like Mr. Howard make will tell us a lot about how much monetary value people attach to travel time savings. In traffic forecasting parlance this decision comes down to the “value of time”: how much do travelers value their time on an hourly basis. For a $3 toll to justify a two minute time savings, one’s time has to be worth about $90 an hour; to justify a $4 toll for two minutes of time savings, one’s time has to be worth $120 an hour. If you face the standard $3 toll, and your time is worth $15 an hour—a standard estimate in travel time studies—you’d wouldn’t find it economically worthwhile to use the toll crossing unless it saved you about 12 minutes of travel time.
This calculus suggests that is very likely that the tolls on the I-65 bridge will prompt many motorists to pull off the freeway and use the free crossing. Of course, if a large number of travelers exit the freeway, and take the parallel Second Street route, that will produce congestion, and increase travel times for those avoiding the toll. The limiting factor on this toll-related diversion is likely to be the capacity of the Second Street Bridge (which has two lanes in each direction) and the capacity of the surface streets connecting the Second Street Bridge to I-65 on each side of the river. We would expect delays to increase on this route at peak hours.
We can estimate how long the delays on the Second Street Bridge route are likely to be, given the value of commuter time. If commuters value their time at $15 per hour, then those facing a $4 toll would be willing to put up with a about 16 minutes of delay (4/15*60 = 16) before they’d be willing to pay a toll to use the bridge; those who had to pay a $3 toll would be willing to tolerate about 12 minutes of delay. Many motorists will attach value to the convenience and certainty of the tolled route, but it would be surprising if the diversion to the Second Avenue Bridge didn’t result in delays of ten minutes or more compared to using the tolled I-65 crossing at rush hours.
At off-peak hours, the diversion rate is likely to be even higher. Because the toll doesn’t vary by time of day, I-65 users will have to pay the same toll regardless of when they cross. While it might be a comparatively good deal to pay the toll during rush hours when the Second Street Bridge is crowded, at off peak hours, the additional time penalty will be closer to the traffic-free two minute estimate provided by Google Maps.
There’s one more wrinkle here as well: The $2-$4 tolls are for cars; medium and heavy trucks pay much higher tolls–up to $10 to $12 for large trucks. While for some kinds of deliveries, the time savings may be worth the cost of the toll, in most cases, neither shippers or truck drivers are willing to pay extra to save just a few minutes. And the same math applies to trucks as to cars. We can assume that the value of time of a truck is in the $35/hour range (reflecting the compensation of the driver and the operating cost of the truck itself). If the toll is $12, a commercial driver will find it more profitable to get off the freeway and use the Second Street Bridge rather than pay a toll, even if the trip takes as much as 15 or 20 minutes longer than the freeway. According to the project’s Supplemental Environmental Impact Statement, the Second Street Bridge carried about 22,000 vehicles per day, and was operating at about 58 percent of its capacity in 2010.
In addition, many if not most commercial drivers have no financial or operational advantage from using tolled roads. Independent truckers and many shipping companies are paid a fixed amount per load (based on distance) and as long as they meet delivery deadlines, don’t get paid any extra for time saved in transit. Effectively, an independent trucker may have to pay the toll out of his profit on the trip. Unless he’s under considerable pressure to make a delivery deadline, he may prefer to spend an extra few minutes taking the free route, rather than pay the toll out of his own pocket. A study prepared for the Transportation Research Board concluded:
Also, unlike car traffic, which is highly concentrated during morning and evening rush hours (and in the case of the I-65 bridge, very much a morning-southbound, evening-northbound peak), truck traffic is much more evenly spread throughout the day. Proportionately more trucks will be crossing the river when the Second Street Bridge is less congested, and therefore will be a more attractive route.
There are more than a few ironies to this situation: First, after spending a billion and a half dollars on the new Lincoln Bridge, and doubling the number of freeway lanes crossing the river on I-65, the new bridge will likely carry fewer vehicles for the foreseeable future (through at least 2030) that it did in 2005. Second, a project avowedly designed to reduce congestion will actually lead to regular congestion of the Second Street Bridge—which is expected to see an 20 percent increase in traffic according to the project’s own estimates (but we believe this figure is probably a substantial under-estimate). What toll diversion—and the permanently depressed level of traffic predicted for the I-65 bridges signals is that a significant fraction of bridge users don’t value the time savings provided by the project to pay for them—even though tolls cover less than half of the cost of the bridge improvement project. In short, this is clear economic evidence that the project isn’t economically warranted.
By tolling some of the bridges across the Ohio, and leaving others toll-free, Indiana and Kentucky are conducting a real-world behavioral economics experiment. Over the next few months we’ll be watching to see how travelers respond to the financial incentives they’ve been provided, and how their travel behavior shifts in response. The results will be interesting.
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