A few recent news articles on congestion has Peter Klein at Organization and Markets asking, “Why the Resistance to Pricing?”
When the quantity demanded exceeds the quantity supplied — causing shortages, delays, congestion, misallocation — the solution is to raise the price. Every freshman economics student knows this. Why, then, are regulators, industry groups, and consumer representatives so often opposed to rationing by the price mechanism?
Klein offers two examples, the airport congestion issue (citing a Reason Foundation commentary and my blog post of last week) and a Wall Street Journal story on internet congestion. In the case of pricing proposed to help clear airport congestion, Klein draws upon the quote I used from the Air Transport Association, “We are unalterably, adamantly opposed to it.” From the Wall Street Journal article on internet congestion, Klein notes the extensive interest in technological solutions — bigger, better, faster, more. “All purely technological remedies. No mention of pricing,” he says.
Scott Wallsten riffed on the same topic in a commentary in response to news report that internet service provider Comcast was sometimes limiting capacity usage by customers who use file sharing services:
While this story immediately degenerated into a fight over net neutrality, economists’ ears should have perked up. If network traffic needs to be “managed,” then something is probably wrong with prices. Getting prices right–by charging heavy users for the costs they impose on everyone else, for example–would go a long way towards reducing the need to manage the network.
Wallsten draws on analogies to road use, electric power, and water utilities, to suggest that rates for high-speed internet use could be priced by some mechanism other than a flat access fee. “Consider highways. … Policymakers have generally tried to deal with congestion by building more roads” — the technological solution rather than pricing. Pricing proposals to address congestion, like HOT lanes, often face opposition even from parties would be benefit from faster travel.
Klein asks, “Is [the opposition to pricing] simply Bryan Caplan’s anti-market bias? Is it interest-group politics? Or is there something specific people don’t like, or don’t understand, about prices?”
It is possible that any proposed price will make some people worse off, possibly almost unavoidable, so some part of any opposition may be simple self-interest. But I think there may be a deeper phenomena at work, in Klein’s words, “something specific people … don’t understand about prices.”
People naturally understand the allocative function of prices — the paying you X so I can get Y — but have a harder time understand the coordination function provided by prices — the paying you enough X so that other people don’t take all of the Y first. Particularly when the value of the coordination function varies dramatically over time (rush hours, peak loads, high season at vacation spots), it seems harder to grasp the abstract service of coordination provided by prices.
Maybe there is work in the behavioral economics literature about congestion pricing, or maybe some sophisticated economics experiments have teased out these differences. I don’t know, but if not it seems like a promising research topic: Why the Resistance to Prices?