I think one thing that confuses people about my support for congestion pricing is that they're not clear what I mean by "congestion pricing."
There are two kinds of road tolls. One is a flat rate or flat charge per mile or some variation thereon. This is the kind of toll TxDOT levies. I've called these "revenue tolls" in the past, just to distinguish them from congestion pricing.
Revenue tolls are inefficient. If environmental costs, wear-and-tear, and accident risks are handled through gas taxes and insurance, as they should be, a motorist driving down a deserted MoPac at 3 a.m. inflicts exactly zero cost on the rest of us. Zip. This means that any toll we charge him exceeds the marginal cost of his trip to the rest of us. Charging more than marginal cost causes some people to forgo trips even though the benefit to them exceeds the harm they do to the rest of us. That's a dead-weight loss. (That loss might be behind some of the opposition to toll roads.)
But revenue tolls can also be too low. When a road becomes congested, each driver entering the highway imposes a very slight cost on everyone else by increasing congestion. The marginal cost of each trip is a positive number. A revenue toll may or may not be high enough to cause the driver to internalize that cost. If the revenue toll is too low, there will be too much congestion.
Revenue tolls simply aren't a good way to handle the costs that drivers impose on one another. Thus, tolled roads like Highway 45 in north Austin are not priced right.
Optimal congestion pricing, on the other hand, is efficient. Congestion pricing forces drivers to internalize the cost they impose on everyone else. The optimal congestion price equals the incremental cost of congestion each driver inflicts on other drivers. It so happens that the optimal congestion price is also the lowest price that will eliminate congestion.
In an ideal world, the congestion charge would vary continuously with the demand for the road. The charge would rise at peak hours. At off-peak hours, when demand is light, the optimal congestion price would be zero. But the charge would always be just enough to keep traffic moving. For I-35, that price would be zero at 2 a.m., but it might be $10 at 4:45 on a Friday afternoon. Some places are now experimenting with continuously variable congestion tolls.
Congestion pricing monetizes economic waste. Without congestion pricing, the cost of sitting in traffic or delaying a trip is lost for good. Congestion pricing turns this loss into money, money that can be used to increase road capacity or build sidewalks or fund better schools. Congestion pricing also gives us clear signals about the adequacy of road capacity. When congestion tolls yield "too much" revenue, we know that we need more capacity.
As I noted in a comment to an earlier post, there are only a few things that virtually all economists agree on. One is that rent control degrades the quality and quantity of housing in the long run. Another is that congestion pricing is good policy.
