Would Perfectly Internalizing Motor Vehicle Externalities Make the Economy Less Efficient?

Michael Giberson

Would perfectly internalizing motor vehicle externalities make the economy less efficient? Jerry Taylor and Peter Van Doren of the Cato Institute make that claim in a paper advocating the repeal of federal and state gasoline taxes. The paper has picked up a couple of high profile econoblogging mentions – from Tyler Cowen, Greg Mankiw, The Economist’s FreeExchange among others.

I haven’t read the paper yet, yet suspect that I will be largely sympathetic to the conclusions reached. But I wonder what Taylor and Van Doren mean when they say, in the executive summary, that “perfectly internalizing motor vehicle externalities would likely make the economy less efficient—not more—by inducing motorists into even more (economically) inefficient mass transit use.”

Since mass transit relies on motor vehicles (are their exceptions?), if externalities associated with motor vehicles are perfectly internalized then persons desirous of transit would face the appropriate prices at the margin across private and publicly-organized alternatives.

I suppose it is a little unfair to pick at the logic in the executive summary, which necessarily omits much of the explanation. I guess I’ll have to read the paper.

2 thoughts on “Would Perfectly Internalizing Motor Vehicle Externalities Make the Economy Less Efficient?

  1. Oh YEAH! One reason that Americans are so damn rich is that the automobile was embraced here more than anywhere else on earth.

    The automobile is a wonderful productivity tool. You combine that with the interstate highway system, and you can very easily see where the post WWII boom came from.

    I’d be for an expansion of the gas tax to fund new highway construction. Expansion of our interstates from 4 lanes to 6 throughout (and double decking the Eisenhower Expressway in Chicago!) would be a no-brainer.

    I’m not against public transportation where it is appropriate, like NYC and Chicago. I am against it just about everywhere else, especially in the suburbs. Suburban busses are a joke. Get rid of them.

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