Nova workboard

a blog from young economists at Nova SBE

The public good and the city

During these past weeks, I read an article on Destak that stated that Maia (a Portuguese conselho) is an island because it is surrounded by tolled motorways. Although the point of the article was lost between the lines, it made me think of the influence that tolled motorways have on the level of attractiveness of a city.

The demand for cities is something that it is influenced by many factors. The amount of services, housing, leisure activities, commerce, and many others. Cities tend to specialize themselves in what they belief they can offer best. There is, nevertheless, one decision that is made at the central level and that unbalances the supply effort of the cities: price of tolls, and the location of tolls.

The case of Maia is not unique. South Hampton roads, in the US, the Oslo Toll Ring, in Norway also have a cluster of tolls that is equivalent of paying a fee to enter the city. This means that when making the decision of going to a city, people have to include the price of the tolls. Thinking in a very simple consumer behavior maximizing utility problem, this translates into an extra variable that increases the price of going or leaving one city, which means that an increase in the budget is necessary in order to attain the same utility level of that same city without the toll.

It seems only unfair that cities have an exogenous source of variation of their level of attractiveness. The provision of the good, road (that has to be payed with the tax, toll) should not set apart cities by influencing the i) price of commuting to and from the city, ii) the level of congestion of one city, iii) the value of living inside that city, iv) the amount of pollution of that city or area. The policy that would equalize this difference would be by having the same number of tolls and same price for each city that exists in a determined country. By this manner we would not create an exogenous source that sets apart cities.

Nevertheless, this seems counter intuitive to current pratical purposes of having a toll in the road, which are deviating traffic from a specific area or lowering levels of pollution. Still, the level of traffic or the level of pollution is a representation of the effort of the city supply. Moreover, there are other ways of charging for pollution and congestion with fees that don’t have to be located in an area that targets a specific city. You can simply pay your right to create pollution and congestion.

As the theoretical justifications for the toll payment are to repay the expenses incurred with the construction of the road, their maintenance, the construction of more roads, this tax could be payed as a centralized tax, like many others. Not differentiating the specific road and access to one city and not creating a distortion on the effort that the city makes to become attractive to the citizens.

Matilde Grácio, #84

Author: studentnovasbe

Master student in Nova Sbe

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