Monday, May 22, 2017

Net Social Loss of Toll Road Construction

I've written before about the inequality-increasing nature of toll road construction (everyone suffers inconvenience now, but only the prosperous get to enjoy the benefits later), but this past weekend, as I was delayed by toll road construction in Orlando, I realized that the total social benefit of toll road construction is negative.

Everyone suffers inconvenience now, so our social welfare declines. But in the future, the convenience is only available to those who pay for it, and with variable-pricing toll roads (as the lanes in the median of Interstate 4 will be), motorists will pay for the entire value of the convenience they experience. So even if I'm rich enough to pay for the toll roads, I receive no net benefit by doing so. Thus, my lifetime value is still negative (loss during the construction phase and no subsequent offsetting gain).

So not only do toll roads increase inequality, they also decrease welfare for all existing motorists.

EDIT (5/26/17): Upon further reflection, I guess this is only true for the marginal user; with a downward-sloping demand curve, there will still be those who value the toll lanes more than the price they pay to use them.

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