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ESSAYS ON ISSUES

THE FEDERAL RESERVE BANK
OF CHICAGO

APRIL 2006
NUMBER 225

Chicago Fed Letter
Inducing more efficient payment on the Illinois Tollway
by Gene Amromin, financial economist, Carrie Jankowski, senior associate economist, and Richard D. Porter, vice president and
senior policy advisor

Historically, an important part of Chicago’s economic strength derived from its geographic
location at the nexus of the country’s transportation networks. Yet, until quite recently, the
payment options on the Illinois Tollway seemed incongruous with the remarkably efficient
transportation network that has kept Chicago on the country’s economic forefront.

All vehicles were required to come to a

full stop at many toll plazas and pay with
coins or dollars. To combat fraud and
improve efficiency, in 1993 the Illinois
Tollway1 introduced an electronic payment option—a radio frequency identification device (RFID)—brand-named
I-PASS. Cars equipped
with an I-PASS have
1. Summary characteristics of driver and Tollway population
the correct toll amount
deducted electronically
Share of workers that...
Number
potentially potentially
upon passing through
Income
of ZIP
Median
drive to
drive on
drive on
specially equipped toll
group
Codes
income
work
Tollway
freeways
gates. RFID technology
Low
139
$52,084
73.3
10.3
63.0
has now improved
Middle
288
$69,612
83.9
16.1
67.8
enough to allow I-PASS
High
135
$92,426
83.6
23.7
59.9
payments while travelNOTES : Based on the sample of 562 ZIP Codes that lie within a 40-mile radius from the
ing at highway speeds.
Illinois Tollway system. Driving to work is determined from 2000 Census data. The share
of workers driving to work is further decomposed into those who drive on the Tollway
Such “open road toll(see note 6 for details) and those who drive on other roads. The reported values are
averages across ZIP Codes in each income category.
ing” is effective in reSOURCE: Authors’ calculations based on data from the 2000 Census Transportation and
ducing the congestion
Planning Package.
that often occurs near
toll plazas.2 However,
its success requires a significant capital
expenditure by the Tollway, as well as a
critical mass of motorists ready to use it.
Jump-starting I-PASS

A variety of things needed attention on
the Tollway at the start of the new millennium: improving collection methods
and maintenance, extending the Tollway
to accommodate growing regional demands, and widening lanes around

toll plazas. But all of these changes required an infusion of fresh funds. Nominal tolls had only increased by a dime
from their initial average level of $0.30
in the late 1950s. If tolls had been indexed to the Consumer Price Index,
motorists would be paying, on average,
close to $2 at each toll plaza. Yet, the
idea of an outright increase in tolls
generated little enthusiasm among state
lawmakers. I-PASS, on the other hand,
had the potential to make the Tollway
more efficient and serve as a catalyst
for reducing congestion.
Still, in 2003, only 41% of rush-hour
motorists used I-PASS, far below the 75%
target the Tollway had once anticipated, in part because obtaining I-PASS
was relatively inconvenient and timeconsuming. That autumn the agency
took steps to lower the transaction and
information costs of getting I-PASS. The
Tollway partnered with a prominent
grocery chain, Jewel-Osco, which became
the volume retailer for transponders.
Between November 2003 and December
2005, Jewel-Osco accounted for nearly
three-quarters of total transponder sales,
as the number of active I-PASS holders
increased from 1.1 million to 2.5 million.
These sales occur in over 200 outlets
across the Chicago area at nominal costs,
since Jewel-Osco sells I-PASS transponders at no cost to the Tollway.

2. I-PASS ownership ratios
Relative to
adult population
Income group
Low
Middle
High

Relative to commuters
who drive to work

Relative to likely
Tollway commuters

Aug. ’04

Feb. ’05

Aug. ’04

Feb. ’05

Aug. ’04

Feb. ’05

0.027
0.102
0.273

0.052
0.176
0.411

0.070
0.196
0.475

0.136
0.336
0.715

0.499
1.027
1.658

0.974
1.760
2.498

NOTES: I-PASS ownership data are provided at the ZIP Code level by the Illinois Tollway. The ratios are computed relative to
all adults aged 16 and over, all commuters driving to work, and all Tollway commuters.
SOURCES: Authors’ calculations based on data from the Illinois Tollway and 2000 Census.

To promote I-PASS sales and increase
public awareness for its congestionrelief plan, the Tollway also negotiated
a partnership with the local NBC station
to provide exclusive access to real-time
videos of Tollway traffic. In exchange,
NBC provided the Tollway with free
on-air advertising valued at $2 million.
Most importantly, the Tollway also
sought to add a financial incentive to
induce electronic toll payments—doubling cash tolls for cars, while leaving
the price of electronic tolls unchanged.3
Then, the Tollway conducted a concerted public awareness campaign. It
met with dozens of civic groups and
editorial boards to convey that congestion relief would be forthcoming if
enough drivers switched to electronic
payment. That was the carrot; the stick
was simple: If car drivers did not switch
from cash, their costs would double
starting in 2005. This message was featured on electronic Tollway billboards
starting in mid-November 2004 and
highlighted in various media outlets.
Aggregate commuter response to
the toll increase

On January 1, 2005, the Illinois Tollway
doubled the price for car cash payers but
left it fixed (at $0.40 at most toll plazas)
for I-PASS users. Here, we look at the
relative importance of price, income, and
costs of learning about and acquiring
I-PASS transponders in shaping consumers’ responses to these toll changes.
While the toll hike for cash payers corresponds to a 100% increase in toll outlays,
the increase represents a considerably
smaller percentage rise in the full cost of
commuting, perhaps no more than 3%,
when taking into account such relevant
economic factors as the tolls paid, the

total cost of operating a vehicle, as well as
a measure of the value of time spent on
the commute.4 Compared with the variable costs of the commute alone, the
toll increase is somewhat more significant, perhaps on the order of 10%.
Nevertheless, commuters and other
travelers quickly began switching to
electronic payment in large numbers.
The share of I-PASS payers had plateaued at around 45% by mid-2004 and
then began to rise steadily following
the announcement of the toll increase.
By November 2004, I-PASS ownership
exceeded 50%, and by early February
2005, it shot up to over 72%, with nearly
a 17 percentage point increase occurring
in January 2005. By the end of January,
over 1.9 million commuters had transponders. As the number of electronic
payers rose, the Tollway was able to add
nonstop lanes to accommodate them.
The increase in I-PASS ownership addressed a chicken-and-egg problem facing
the Tollway. It could not rapidly bring
I-PASS-only lanes to toll plazas unless
there was enough demand from drivers.
Similarly, without such lanes, the benefit
from I-PASS ownership would be limited,
making commuters reluctant to sign up.
The economics of payment choice
on the Tollway

Prior to the toll price change, the economic choice facing Tollway users was
simple: Pay with I-PASS and go faster,
or pay with cash and wait in line. They
had to choose between a cheaper but
less attractive payment mechanism and
a costlier but more desirable one.
The convenience of I-PASS and the
possibility for faster travel it offered
were counterbalanced by the carry cost
of the $10 I-PASS deposit and of the

approximately $25 balance held on
the transponder. Following the change
in prices, electronic toll payments offered both a cheaper and faster (more
reliable, easier) way to travel. Indeed,
under the new pricing regime an average Tollway user accustomed to paying
$0.70 in cash on one leg of a daily
commute would save about $336 in
tolls over a year by switching to I-PASS.
This difference in toll outlays, coupled
with the nonmonetary benefits of electronic toll payments, is counteracted
by the carry costs of I-PASS balances,
as well as costs of learning, acquisition,
and installation of a transponder. In a
simple cost–benefit analysis, the latter
costs would appear to be small relative
to the annual out-of-pocket toll payments.
So why have some consumers been reluctant to convert to I-PASS? One possible explanation is fixed participation
costs (whether perceived or real), which
can preclude or delay the adoption of
a superior payment mechanism. These
costs derive from having to acquire new
information and skills, and they have
been shown to play a role in explaining
other consumer choices, such as limited participation in equity markets. Privacy concerns constitute another hurdle.
Although the Tollway does not use I-PASS
data to enforce speed limits, the possibility that information about the exact
time and pattern of Tollway travel could
be subpoenaed from the Tollway has
proven to be off-putting to some drivers.5
In sum, it appears that I-PASS ownership
will be more prevalent among drivers
who incur higher Tollway expenses and
who place a higher value on time. Such
drivers would typically use the Tollway
system more frequently, drive longer distances, and face more congested commutes. I-PASS will also be more appealing
to those drivers who can acquire information about it more easily, obtain transponders with greater convenience, and
assign less importance to privacy of
their driving choices.
Empirical results

While we cannot directly measure the
value of privacy, we do have data bearing on other important determinants
of payment choices by Tollway drivers.

In particular, the Census Transportation
and Planning Package provides detailed
information on daily commuting patterns by pairing place of residence and
place of work. With these data, we estimate the number of people commuting between any two ZIP Codes, their
time spent in commuting, as well as
their mode of transportation. We also
compute the daily commuting distance
and the cost of the commute. In addition, we have Census data on income,
education, and other demographic characteristics. Finally, we use information
on the location of Jewel-Osco stores (the
primary I-PASS retail outlets) and on
I-PASS ownership among neighbors
and co-workers to gauge the ease of
acquiring and learning about I-PASS.
With these data, we try to explain I-PASS
ownership before the doubling of cash
tolls and afterward.
A particularly important task is to identify likely Tollway users in each ZIP Code,
whom we infer on the basis of Census
commuting patterns data. In particular,
for each of the unique permutations of
the 562 ZIP Codes in our sample, we
used an Internet mapping program
along with a simple heuristic algorithm
to classify whether a Tollway commute
between this pair of ZIP Codes is a viable
alternative.6 If the answer was affirmative, we classified drivers commuting
between this pair of ZIP Codes as likely
Tollway users.
The strong positive association between
income and likelihood of Tollway use is
one the most dramatic features in the
data. As shown in figure 1 on the front
page, high-income ZIP Codes (median
income among working households
above $80,000) have more than twice as
high a share of likely Tollway drivers
as low-income ZIP Codes (less than
$60,000).7 The contrast between highand middle-income (between $60,000
and $80,000) groups is less dramatic,
though there is still a nearly 50% difference in shares of likely Tollway drivers.
The clear tendency for potential Tollway
use to rise with income reflects the
strategic choice of many higher-income
households to live in neighborhoods
that are close to the Tollway and convenient for their workday commutes.

Figure 2 compares I-PASS choices for
these income groups (before and after
the price change) by presenting ratios
of active I-PASS accounts to different
population counts: the entire adult population (16 and over), commuters who
drive to work, and commuters who likely
take the Tollway to and from work. The
results for these population slices tell a
similar story, and thus, we focus on
those driving to work for simplicity. In
the summer before the price change
(August 2004), I-PASS ownership was
quite high among households in middleand high-income ZIPs, with ratios of
about 0.20 and 0.48, respectively. In
contrast, the ratio of number of I-PASS
accounts to drivers in low-income ZIPs
was only 0.07. Much of this difference
could be attributed to the higher propensity of Tollway usage among higherincome households. Yet, as shown in the
last set of columns, the stark difference
in I-PASS ownership was evident even
for the subset of drivers likely to use
the Tollway in their daily commute.
The dramatic relative price change and
the corresponding public awareness campaign were sufficient to boost I-PASS ownership ratios across all income groups.
In fact, by February 2005 the number of
I-PASS accounts nearly equaled the
number of the most intensive Tollway
users—those likely to be using it for their
everyday commute—in the lowest income
group, and exceeded it for the other two
groups, as indicated by ownership ratios
above 1. Put differently, a ratio of 1 would
reflect full participation based on our
determination of likely Tollway use and
on Census surveys of where people work
and live. Beyond getting to work, the
Tollway is a convenient gateway for going to many regional destinations: the
airports, suburban and downtown shopping venues, downtown eateries, parks
and shows, and the like. Thus, a rate
greater than 1 is indicative of wide noncommuting uses of the Tollway.8 Indeed,
the very high ratios of I-PASS ownership
in the more affluent neighborhoods
underscore the strong appeal of the
electronic payments choice even for the
occasional toll drivers in those areas.
The importance of nonwork destinations in influencing I-PASS ownership

is corroborated by another feature of
the data. We find that the doubling of
cash tolls had a roughly similar impact
on the increase in I-PASS usage among
rush-hour drivers—the vast majority of
whom are commuting to work every
day—and among midday or nighttime
drivers that include a large share of shoppers and students, whose driving patterns
are typically much more irregular than
those of rush-hour commuters.
We are also interested in learning whether
the increase in use of electronic payments
was systematically related to specific attributes of the daily toll commute, such
as distance, cost, and congestion; we also
want to understand the relative importance of the two basic aspects of the price
change—higher cash tolls and greater
exposure to information—for different
income groups.
To answer these questions and to establish statistical significance of multiple
explanatory variables, we conducted
logit regression analysis of I-PASS ownership before and after the price change.
Prior to January 2005, I-PASS toll payments did not bestow any monetary advantages over cash, and hence, I-PASS
should have been most appealing to
those who placed a high value on time

Michael H. Moskow, President; Charles L. Evans,
Senior Vice President and Director of Research; Douglas
Evanoff, Vice President, financial studies; David
Marshall, Vice President, macroeconomic policy research;
Richard Porter, Vice President, payment studies;
Daniel Sullivan, Vice President, microeconomic policy
research; William Testa, Vice President, regional
programs and Economics Editor; Helen O’D. Koshy,
Kathryn Moran, and Han Y. Choi, Editors; Rita
Molloy and Julia Baker, Production Editors.
Chicago Fed Letter is published monthly by the
Research Department of the Federal Reserve
Bank of Chicago. The views expressed are the
authors’ and are not necessarily those of the
Federal Reserve Bank of Chicago or the Federal
Reserve System.
© 2006 Federal Reserve Bank of Chicago
Chicago Fed Letter articles may be reproduced in
whole or in part, provided the articles are not
reproduced or distributed for commercial gain
and provided the source is appropriately credited.
Prior written permission must be obtained for
any other reproduction, distribution, republication, or creation of derivative works of Chicago Fed
Letter articles. To request permission, please contact
Helen Koshy, senior editor, at 312-322-5830 or
email Helen.Koshy@chi.frb.org. Chicago Fed
Letter and other Bank publications are available
on the Bank’s website at www.chicagofed.org.
ISSN 0895-0164

and had low acquisition costs. Living
close to the Tollway and having high
income can be thought of as two indicators of those who place a high value
on time, and we found that both had
strong independent positive effects on
I-PASS ownership. We also found evidence for the importance of learning
and acquisition costs. Such costs would
be lower if one lived closer to an I-PASS
retail outlet (e.g., a Jewel-Osco store) or
had more interactions with those who
already owned I-PASS (e.g., neighbors
and co-workers). In our regressions,
ZIP Codes located closer to Jewel-Osco
stores as well as those with higher I-PASS
ownership by neighbors and co-workers
had markedly higher ownership rates.
The doubling of cash tolls in January
2005 was accompanied by a concerted
public awareness campaign. We find
some evidence that, on average, lowand medium-income neighborhoods
responded to the cost doubling aspect
of the pricing change while high-income
neighborhoods were affected by the convenience of I-PASS acquisition through
heavily advertised retail outlets. All income groups responded positively to
propagation of I-PASS ownership among
their fellow co-workers and neighbors,
which made learning about I-PASS easier
through everyday social interactions.

1

The roads and the Illinois State Toll
Highway Authority itself are here referred
to as the “Tollway.” The Tollway is located
in the northern part of the state with spokes
going to Wisconsin, Iowa, and northern
Indiana from Chicago. We thank the Illinois
Tollway for generously sharing data and
institutional knowledge with us.

2

Under the full implementation of open
road tolling, cars unable to pay electronically will be diverted to an off-road payment
ramp and subsequently have to merge back
onto the Tollway. Open road tolling (barrierfree mainline tollway system) will become
the standard during 2006.

of Directors for the Illinois Tollway approved it on September 30, 2004.

Conclusion

We find that relative to the population of
likely Tollway users, I-PASS ownership ratios virtually reached or exceeded 1 for
all income groups under the new pricing
regime. In addition, I-PASS is being increasingly used by other drivers for relatively less frequent trips to the airport,
shopping centers, or various leisure destinations. Such users are more prevalent in
higher-income neighborhoods, in part because they are often located relatively near
to the Tollway. An overall welfare assessment of this electronic payment experiment ultimately awaits the completion of
the open road tolling infrastructure. To
date, the Tollway’s electronic payment system appears to be off to a promising start.

3

Governor Rod Blagojevich unveiled the
plan on August 25, 2004, and the Board

4

In analyzing travel demand, we use the
concept of the value of time to represent
the subjective dollar cost that commuters
place on traveling for a unit of time. We
quantify this value on the basis of a recent
study by Kenneth A. Small, Clifford Winston,
and Jia Yan, 2005, “Uncovering the distribution of motorists’ preferences for travel
time and reliability,” Econometrica, Vol. 73,
No. 4, pp. 1367–1382.

5

Privacy concerns were the most common
response to an open-ended survey question asking respondents to name major
obstacle(s) preventing them from getting
I-PASS.

6

MapQuest search provides a yes/no answer
with respect to suggested Tollway usage on
a given trip segment. The heuristic algorithm consists of comparing a straight line
distance between origin and destination
points, with the shortest route requiring the
Tollway, and rejecting the Tollway if it extends the length of the trip by more than a
certain threshold. Both the threshold and
the choice of weights for MapQuest and
heuristic rules were calibrated on actual
Tollway traffic data. As not all routes are
reversible, in a given pair of ZIP Codes,
we looked separately at trips originating
at each ZIP.

7

This particular income breakdown was used
in the study on the value of time referenced
in note 4.

8

When the ratio begins to exceed 1, we start
picking up some households that use the
Tollway exclusively for leisure trips.


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