Is the zone pricing ban raising average gasoline prices in New York?

Michael Giberson

In my just published post on zone pricing, I noted a newspaper story from New York which suggests that the recently enacted ban on zone prices was equalizing gasoline prices, at least around Rochester. To quote myself:

Meanwhile, in neighboring New York, a newspaper story from suburban Rochester suggests that the state’s new zone pricing ban is helping to equalize prices between formerly high priced and formerly low priced stations. (The story doesn’t report whether prices have been equalized mostly or entirely by reductions in prices in the formerly high-priced areas or by increases in prices in formerly low priced areas.)

Then I began to wonder what data suggests on the subject of that parenthetical remark.

AAA’s Daily Fuel Gauge Report presents average prices nationwide and by metropolitan area.  Here are the current (May 26, 2009) average national prices:

Regular Mid Premium Diesel
Current Avg. $2.425 $2.575 $2.667 $2.320
Yesterday Avg. $2.424 $2.575 $2.666 $2.324
Week Ago Avg. $2.314 $2.458 $2.546 $2.292
Month Ago Avg. $2.052 $2.179 $2.257 $2.265
Year Ago Avg. $3.936 $4.181 $4.330 $4.765

So nationally, prices are about $1.50 lower than a year ago, but up about 40 cents from a month ago.

What about in New York? The AAA Fuel Gauge Report offers average prices for four categories (regular, mid-grade, and premium gasoline and diesel) for eight metropolitan regions in New York (Albany-Schenectady-Troy; Binghamton; Buffalo-Niagara; Nassau-Suffolk; New York; Rochester; Syracuse; and Utica-Rome). I first compared current prices in each of the eight metro areas to current national averages, and in every case the current average prices in New York are higher than the comparable current national average price. In itself, this is not surprising, as the prices include taxes and New York state has some of the highest state gasoline taxes.

Second, I compared year-ago prices in each metro area to year-ago national averages (conveniently, the zone pricing ban was implemented about six months ago, so current prices are six months after the ban, while year-ago prices are six months prior to the ban. Seasonal effects should be similar in May 2008 and May 2009). Again, presumably due to above-average taxes, every New York average price is higher than the corresponding national average price. Again, not surprising.

Third, and maybe this is interesting, every New York metro price for each of the four categories reported (regular, mid-grade, premium, and diesel) is higher now relative to current national averages than they were a year ago. That is to say, for example, a year ago Rochester regular prices were 2.4 percent higher than the national average, and now they are 4.3 percent higher. Year-ago Syracuse premium prices were 1.1 percent higher than the national average, current prices are 4.2 percent higher. Year-ago Nassau-Suffolk diesel prices were 6.8 percent higher than nationally, current diesel prices are 11.9 percent higher. All eight metro locations, for all four fuel categories, a total of thirty two data points all pointing to the conclusion that average gasoline prices in New York state are higher today compared to a year ago.

Now let’s look at neighboring Connecticut. The AAA Fuel Gauge Report offers average prices for the same four categories in four metropolitan areas (Bridgeport; Hartford; New Haven-Meriden; and New London-Norwich). Connecticut actually has slightly higher gasoline taxes than New York, so it is not surprising that current and year-ago prices for every one of the four metropolitan areas and four categories are higher than the national averages.

For each of the three gasoline prices (regulation, mid-grade, and premium), in each of the four Connecticut metropolitan areas, the prices are lower relative to current national averages than they were a year ago. That is to say, for example, a year ago in in Bridgeport, regular gasoline prices were 8.7 percent higher than the national average, but now they are down a bit to 7.9 percent over the national average. Similarly, year-ago premium prices in New Haven were 7 percent over the national average, but now are “just” 5.7 percent above national averages. A total of twelve data points in Connecticut, all indicating the gasoline prices in the state are lower now compare to a year ago, relative to national average. (On the other hand, diesel prices in each of the four areas in Connecticut are higher now, relative to national prices, than they were a year ago – just the same as in New York.)

This analysis is far from conclusive. Comparing simple state-wide averages to national averages will obscure much interesting information about the potential impact of a zone pricing ban. Maybe this effect is produced by differences in state taxation, or some other change in New York that didn’t also affect Connecticut. But it is at least suggestive that gasoline prices in New York have increased relative to the national average after the zone pricing ban even as prices in a neighboring state fell relative to the national average. This simple, readily available data suggests that if prices are now more uniform across the state, it has come more from higher prices in formerly low priced areas than from lower prices in formerly high priced areas.

Legislators from wealthy Fairfield County, Connecticut hope a zone pricing ban will save constituents money

Michael Giberson

From the website of Livvy Floren, Greenwich state representative and Assistant Republican Leader in the Connecticut House of Representatives, “Greenwich Delegation Calls for Ban on Zone Pricing of Gas“:

HARTFORD- Greenwich State Reps. Livvy Floren (R-149), Lile Gibbons (R-150) and Fred Camillo (R-151) are dismayed the state legislature refuses to address the issue of gasoline zone pricing which forces Greenwich to pay the highest gas prices in Connecticut.

“Zone pricing comes down to equity across the state. Once the gas is in the pipe, prices should be equal since there is no marginal or incremental delivery cost. That is all we are asking for with this ban,” said Rep. Floren….

Rep. Fred Camillo who is a freshman legislator from Cos Cob said he wonders why the legislature refuses to debate this bill. “It’s an issue of fairness, Fairfield County legislators, both Republican and Democrat, stand united against this un-American practice. Our local businesses bear the tough burden of selling the most expensive gas in the state with out any choice and it hurts their bottom line selling other products as drivers gas up out of town.”

An “un-American practice”? What is un-American about allowing private companies to set their own prices?

In any case, if I were a legislator from elsewhere in the state, I’d be leery about a bill that likely tend to raise average gasoline prices in my district.

(At least that is the implication of this economic study of a related proposal in California, conducted by Michael Keeley and Kenneth Elzinga. Other analyses have tended to find the effects of a zone pricing ban to be either harmful or at best ambiguous.  See related posts and especially this one at Knowledge Problem for discussion.

Do you know of zone pricing analyses not yet mentioned in these posts? Let me know in the comments.)

Meanwhile, in neighboring New York, a newspaper story from suburban Rochester suggests that the state’s new zone pricing ban is helping to equalize prices between formerly high priced and formerly low priced stations. (The story doesn’t report whether prices have been equalized mostly or entirely by reductions in prices in the formerly high-priced areas or by increases in prices in formerly low priced areas.)

My smart grid article in Reason

Lynne Kiesling

My article on smart grid from the June print edition of Reason is now available online. Here’s the conclusion for a bit of a teaser:

The obsolete electro-mechanical electric power network, built by and for a monopoly industry, cannot support the kind of growth experienced during the last 20 years in so many other industries. All that stands in the way of vibrant, customerfriendly electricity products and services is an outdated infrastructure run by hesitant monopolies and regulated by bureaucrats with little incentive to improve things. We can do smarter.

Plus, I really like the cool retro picture of Nikola Tesla that accompanies the Hit & Run entry for my article!

What is economics, exactly?

Lynne Kiesling

I talk to a lot of different folks with different backgrounds in economics. Perhaps it’s because of the specific and arcane nature of “utility economics”, but many of the folks I meet think of economics as being very focused on forecasting, financial analysis, and quantitative estimates of various investments, rate/tariff policies, etc.

Frankly, this narrow construction of economics always makes me uncomfortable. Yes, these ideas are all part of economics, and important, but they do tend to overlook the very crucial extent to which economics is the study of human action construed more generally.

For that reason, I wanted to draw specific attention to the quote that Alex and Tyler are going to use as the epigraph in their new textbook:

Economics is the study of how to get the most out of life.

Glaeser and Florida on urbanization, and Nashville’s lure

Lynne Kiesling

Here are a couple of interesting and related articles on urban dynamism and what economists call economies of agglomeration. Digital communication technology was supposed to reduce those economies of agglomeration, right? We can work from anywhere, don’t have to be physically co-located, and that includes developing countries too … so, as Ed Glaeser asks at the Economix blog at the New York Times, “[w]hy has information technology led to urban concentration rather than a great programmer diaspora?” He suggests that knowledge still flows best, and the comparative advantage and returns to intelligence are highest, when people are in close physical proximity. He then goes on to discuss globalization and the growth of cities in developing countries, a very interesting article.

In a similar vein, Richard Florida has a post at the Atlantic on the growth of Nashville as a focal point for musicians:

In 1970, Nashville was a minor center focused on country music. By 2004, only New York and L.A. boasted more musicians. The extent of its growth was so significant that when my research team and I charted the geographic centers of the music industry from 1970 and 2004 using a metric called a location quotient, Nashville was the only city that registered positive growth. In effect, it sucked up all the growth in the music industry.

While Nashville may not possess the size and scale of New York City, the celebrity-making allure of L.A., the top-40 hit-making appeal of Atlanta, or even the critical cachet of Austin or Montreal, across many genres it possesses the world’s best writing and studio talent and the best recording infrastructure. Today, it’s home to over 180 recording studios, 130 music publishers, 100 live music clubs, and 80 record labels. It’s turned into the Silicon Valley of the music business, combining the best institutions, the best infrastructure, and the best talent. And, like Silicon Valley’s broad reach across many high-tech fields from hardware to software, biotech to green energy, Nashville has become the center for multiple musical genres from country and gospel to rock and pop, attracting top talent from across the United States and the globe.
Note the parallel he draws between Nashville and Silicon Valley: the agglomeration of institutions, infrastructure, and talent. Even with globalization and technological change, the agglomeration of institutions, infrastructure, and talent continues to be the core reason why cities grow and thrive and serve as focal points for economic activity and creativity (or fail to do so).

Auctions as tools to limit government discretion

Michael Giberson

Auctions, especially auctions of government property, are not a tool of the rich…  As principles of market design become more thoroughly articulated and widely understood, the sphere of governmental discretion will shrink. More and more, politicians will be forced to play by the rules.

That’s David Warsh writing on the relationship between the economics of auctions and government. His main point is that when government property (anything from radio spectrum licenses to surplus office furniture) is sold by auction rather than disposed of in other ways, the tendency is for rules to limit discretion. Lobbying and personal relationships become less important, and cash deposited into government accounts becomes more important.

It might be objected that the current lobbying frenzy occasioned by the Waxman-Markey carbon emission cap-and-trade bill is a counter example. For example, from the New York Times:

Cap and trade, by contrast, is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts. That is precisely what is taking place now in the House Energy and Commerce Committee….

Yes, a lot of lobbying is going on. Regulation of carbon emissions will occasion a substantial increase in the influence of the government over the economy, and the consequences of that potential regulation provide significant motivation for firms to invest in lobbying.

But observe carefully, this isn’t a case in which auction tools enhance the granting of political favors. Instead it is an example of how, if you want an advantage in an auction system, your best bet is to get your advantage placed in the rules in writing up front. No CEO is saying to his board, “Don’t worry, I went to school with the guy at the EPA (or DOE or wherever) who will be in charge of the auction; he owes me a few favors, he’ll take care of us.” Instead, they are lobbying like crazy.

When the rules are in place (and the subsequent narrower lobbying over the implementing regulations, and the subsequent lawsuits roll through the courts), the ability of wealth to buy political favors will be constrained.