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August 24,1 979
On The Road To Singapore
Congestionon urban highwaysis a worldwide
phenomenon. Commuters in virtually every
major city of the Western world face a daily
nightmare of delay and frustrationasthey
travel toand from their jobs -even when they
can find enough gasto make their trips.
Traditionally, policymakers try to solve the
problem of congestionby increasinghighway
capacity. Much of the 10,000 miles of high,
way built each year in the United States
expands the capacity of existing corridors.
Curiously, however, the problem of peakperiod congestiondoesnot disappearwith the
addition of new capacity. Indeed,accordingto
. urban specialist Anthony Downs' law of Peak
Hour ExpresswayCongestion,traffic inevitably grows to fill the available capacity.
Economistsbelieve that the origins of the congestion problem lie in the method we useto
price highway services.Although this viewpoi nt has been accepted by the professionfor
many years, it is only now finding its way into
policy - specifically, with the adoption of a
unique highway-pricing experiment in
Singapore.But before examining the experiment, we would do well to analyzethe origins
of the problem.
Pricingroads
In most countries, highway usageis priced
indirectly through a systemof surchargeson
gasoline purchases,although tolls are usedfor
some special facilities. Sincethe consumption
of gasoline is roughly proportional to the mileage traveled, this mechanism implies an
essentiallyuniform charge per mileto all users.
A morning freeway commute and a leisurely
trip on a back-countryroad thus are priced at
essentiallythe samefigure per mile.
This pricing mechanism,with its virtue of
administrative simplicity, has provided a useful method of financing the "brick and mortar"
costsof highway construction. As an indicator
of the true cost of highway use,however, it has
major liabilities.
During commute rush hours,for example, the
incremental cost of adding a vehicle to the
traffic flow can be extremely high when the
delay that is imposed upon other usersis considered. To the economist, time is an
important resource,and an efficient price
systemshould reflect thesetime costs.Butthe
present pricing systemignorestheseeffects,
thus encouragingdrivers who aretaking easily
avoidable trips to use the roadway and to
generatetime penalties(congestion)for all
other users.
Efficient road prices would thusvary by time of
day, with higher pricesduring commute hours
and lower prices when traffic is light and the
congestion effectsare lesspronounced. Recent theoretical studieshave shown that a
systemof such "congestion prices" would
foster more efficient use of existing roadways
and would lead to lower overall travel costs,
Congestion pricing would also tip the balance
in favor of transit usage,particularly bus-transit
services.Transit systemsnow sufferfrom the
liability of relatively slow service,causedby
congestedroad conditions. Congestion
pricing would increasethe averagespeedof
commute buseswithout appreciably increasing the individual bus rider's cash costs.(The
buses' congestion fees,when spreadover 40
or more passengers,would be quite small.)
Implementationproblems
Despite the economic arguments,policy
makershave found the prescriptionof congestion pricing hard to swallow for a number of
reasons.First,the increasesin peak-period
prices that are necessaryto bring prices into
line with costsmay be quite large.The cost of
peak-period travel on urban California free-
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centsper vehicle mile. This contrastssharply
with the cost implicit in the existing gasoline
surchargeof about onecentper mile.
Although a shift to a new prici ng systemwou Id
bring about time savingsand lesswasteful use
of resources,the political problem of implementing such price increasesis obviously
quite severe.
Singapore is an island republic of 2.3 million
people and 225 squaremiles off the Malay
peninsula. In the decade from 1965 to 1975,
population increasedby 24 percent and gross
domestic product jumped by 188 percent.
This rapid growth stimulated automobile
ownership and use,so that by 1973 there were
188,000 private automobiles in Singapore.
Nearly 45,000 of thesevehicles jammed the
limited highway facilities during the morning
commute peak.
Second, although the realignment of road
prices would generatepositive net effects,it
inevitably meansthat certain userswill benefit
and others will lose. Somepolicy makersfear
that only the well-to-do would benefit,
because only they would be able to afford
accessto the uncongested facility. Although
this view ignores the benefitsthat would
accrue to transit usersand carpoolers (who
needn't be rich), concern abouttheequity and
distributional implications has been an
important factor in delaying reform of highway
pricing policies.
In 1974, Singaporeadopted a systemof area
licensing designed to increasethe price of
roadways in the congestedareasof the city
during commute hours. Under this scheme,
private automobiles are required to exhibit a
special license to enter the controlled area,
which is approximately a quarter of a mile on
each side, between the hoursof 7:30 a.m. and
10:15 a.m. Each license costsabout $30 per
month (daily licensesare also available).
The licensing scheme is enforced by a small
traffic police force stationedat various entry
points of the controlled areaduring morning
commute hours. Thesepolice have the power
to levy substantiaifines on violators of the
licensing regulations.
Finally, the implementation of road pricesthat
. vary by time of day requiresthe development
of innovative pricing mechanisms.Simply
changing the price of commute travel through
the cost of gasoline (as is happening inadvertently today asa result of energy problems)will
not provide the necessaryincentives to differentially conserve on peak period travel. The
present uniform gasoline surchargewould
have to be augmented by special toll facilities
or operating permits on congestedfacilities.
This representsa major departurefrom current
administrative practice.
The Singaporegovernment,when implementing the congestion pricing scheme,also provided additional bus-transitservice as well as
extra parking facilities for transit usersoutside
of the downtown area. Thesemeasures,along
with an exemption for four-person carpools,
helped ensurethat the benefitsof reduced
congestion wou Id beenjoyed by all commuters, and not just thosewho could afford the
monthly license. Road facilities around the
circumference of the central businessdistrict
. permit through traffic to avoid the controlled
area.
Singapore experiment
For all these reasons,most countries have not
tried to implement any such congestionpricing system. Still, some developing nations
have shown an interest in the concept as a
means of conserving their scarceeconomic
resources,and the tiny city-state of Singapore
has actually put a plan of this type into effect.
The results of the Singaporeexperiment
strongly suggestthat the concept of congestion
2
nations to consider such a program.The
modest costsof the policy (expandedbus service and additional traffic personnel)suggest
that it would provide an attractiveremedyfor
congestion in developing countries,and in
other cou ntriesas well.
pricing can actually work. In that testcase,
congestion has been reduced significantly,
with total traffic volume falling by almost 50
percent during the restrictedhours.Commute
times have generally been reduced,both for
those who continue to drive and thosewho
have switched to an alternativemode. The
high level of public acceptanceindicatesthat
most travelers have benefitedfrom the policy
and that commercial activity has not discernibly suffered.
In 1977, the Urban MassTransitAdministration (UMTA) of the U.S. DepartmentofTransportation explored the possibility of conducting an area-licensingexperiment in an
American city. Although severalcommunities
discussedthe concept with UMTA representatives, none showed an immediate interestin
implementing such a plan. But that wasbefore
the 1979 energycrisis highlightedthe problem
of resource conservation.Whether congestion
pricing spreadsto the United Statesand other
industrialized nationsdependsupon how they
feel in the future about efficiently allocating
energy and other resourcesby improving highway efficiency.
The road from Singapore
The area-licensingschemeis obviously a
crude approximation to an ideal systemof
time-differentiated road prices. Moreover, the
relationship between pricing of existing roads
and investment in new road facilities has not
been clearly articulated in the Singapore
approach. Nevertheless,the policy represents
an important attempt to balancetheoretical
concepts and administrative reality.
The apparent successof the Singaporeexperiment has led a number of other developing
RandallPozdena
The Dollar of the Future
To help publicize the Anthony dollar coin, the FederalRes"rveis making
available to the public a Treasurypamphlet entitled, "The Dollar of the
Future." Freecopies of the pamphlet are available, individually or in bulk,
to financial institutions, retailers, schools and community groups. For
copies, write or call the Public Information Section, FederalReserveBank
of SanFrancisco,P.O. Box 7702, SanFrancisco,Phone(415) 544-21 84or call the Bank and Public ServicesDepartment at any FederalReserve
office.
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BANKINGDATA-TWELFTHFEDERAL
RESERVE
DISTRICT
(Dollaramountsin millions)
SelectedAssetsand
large Commercia!
Banks
loans(gross,adjusted)
andinvestments*
Loans(gross,adjusted)- total#
Commercialandindustrial
Realestate
loansto individuals
Securities
loans
U.S:Treasury
securities*
Othersecurities*
Demanddeposits- total#
Demanddeposits- adjusted
Savings
deposits- total
Timedeposits- total#
Individuals,part.& corp.
(largenegotiable
CD's)
WeeldyAverages
of Daily Figures
MemberBankR....". PosUion
Excess
Reserves
(+ l/Deficiency(-)
Borrowings
NetfreereselVes
(+ )/Net borrowed{
-)
Federal
Funds- Sevenlarg. Banks
Netinterbanktransactions
Amount
Outstanding
8/8/79
130,720
107,982
31,569
39,349
22,032
1,943
7,456
15,282
42,365
31,272
30,533
51,405
43,017
18,373
Weekended
8/8/79
Change
from
8/1179
846
+ 18,172
16.15
668
+ 16,938
18.60
3
16.60
+ 4,494
250
+ 8,228
26.44
98
NA
NA
15
NA
NA
59
373
4.76
119
+ 1,607
11.75
- 1,314
+ 2,498
6.27
473
+ 1,162
3.86
77
+
138
4.54
409
+ 6,050
13.34
473
+ 6,917
19.16
349
+ 1,203
7.01
Weekended
Comparable
8/1/79
period
26
30
4
+1862
Changefrom
yearago@
Dollar
Percent
16
75
59
+
738
-
38
15
53
+1381
[Purchases(+ )/5ales(-)J
Net,U.S.Securities
dealertransactions
- 162
425
+ 231
[Loans(+)/Borrowings(-)]
'" Excludes
tradingaccountsecurities.
# Indudesitemsnotshownseparately.
@ Historicaldataarenot strictlycomparable
dueto changes
in thereportingpanel; however,adjustments
havebeenappliedto 1978datato removeasmuchaspossiblethe effectsof the changesin coverage.
In
addition,for someitems,historicaldataarenotavailabledueto definitionalchanges,
Editorialcommentsmaybe addressed
to the editor(WilliamBurke)or to the author,.. , Freecopiesof this
andotherFederalReserve
publications
canbeobtainedbycallingor writingthe PublicInfonnationSection,
Federal
Reserv.Bankof SanFrancoco,P.O.Box7702,Sanfrancisco94120.Phone(415)544.2184.
@FedFRASER