Wednesday, October 13, 2010

A Parking Proposal

It always strikes me how unwilling many people are to use prices to solve problems of scarce resources. Parking on college campuses is a prime example, and Dartmouth serves well as a case in point.

The parking lot close to the Tuck School fills up by 8:15am; if you arrive after that, you will have to hike a distance of at least 10-15 minutes. Now I know that may not sound like a catastrophe, and even be good for one's health, but the value of people's time is significant. When it is raining or snowing, or just plain cold (as in below zero) a 15 minute walk across campus is quite unappealing. And of course it is on such days that the parking lot fills up by 8:05 am.

The major cost of not having adequate parking is that faculty will simply choose to not come in to work. On days when not teaching, a professor can just as effectively work from home. Unfortunately, they are then not mingling with others on campus and the lifeblood of the university -- collegial, intellectual interaction -- drains away. For junior faculty, if senior folks are not around, this is a very serious problem. This is not a visible effect, but it is there, and college administrators who ignore it are ill-advised.

This effect also occurs during the day, if an employee has to leave for an off-campus meeting. Not knowing if there will be a spot when they return, many will go home and finish the day there.

Other less important effects are the waste of time spent circling for a free spot (and the gas and carbon) and the time spent trying to be the early bird. I really hate seeing people idling their cars in the parking lot waiting for someone to show up and leave, yet that happens regularly. Where are the green police when you need them?

So what is the answer? Raise the price of parking in the lots closest to campus. Raise the prices until the market clears and the excess demand disappears. "The beatings will continue until the whining stops."

Why the vehement objection to something like this? The usual culprit is that lower-paid employees will not be able to afford the increases, or just that such price increases are a larger part of lower-paid employees' income, so they hurt them more. Yes, that is true, and it is a valid complaint. But the complaint is confusing the incentive effects of higher marginal prices with income effects.

The way to get around this objection is as follows. The rate for on-campus parking right now is $30 per month and $22.50 per month in remote lots. First point: these prices are way too low to have any meaningful incentive effects, and the discrepancy between lots is a joke -- $7.50 per month, $90 per year. Ha!

So the rates should be something like $100 per month for on-campus lots and $20 for remote. Now we are starting to get into an incentive-relevant region. I suspect many people would opt for a remote lot if it meant $960 per year in their pocket.

But here is the real kicker. To put just the price effect into play, without the negative aspects of an income effect, the College can give everyone a cash bonus in their paycheck equal to the increase in rates: $70 per month, or $840 per year. So everyone can keep their current parking and their overall financial situation is unchanged.

But! Anyone can also switch to a remote lot and save $80 per month! Note how this is more of a carrot approach than a stick. Instead of just saying, "parking is more expensive" we are saying, "Parking is more expensive, but we are going to give you additional money to spend how you like. For many of you, spending it on parking is probably not the best use."

Yes, to the extent that people switch to the lower cost lot, the College loses some money. I confidently conjecture that the gains from increased presence on campus and time and fuel savings will far outweigh the loss of revenue. But if that is such a big problem, then I propose this: have the cash bonus paid only to lower-income employees, accomplished through a sliding reduction of the payment. Something like this: the payment is the full $840 per year for anyone earning less than $50,000, and then it phases out linearly between $50K and $100K. This will make the proposal revenue neutral or even revenue positive for the College.

There are a few minor complications that would have to be dealt with, such as the fact that lower income employees actually only pay $12 and $9 for on-campus vs. remote parking right now. See how fairness and equity issues get resolved through pricing of resources -- exactly the last thing you want to do!! For crying out loud, a parking spot is a parking spot; its price has to be the same to everyone so that we all face the same cost of using it! Prices of parking will have to be raised significantly to these lower income folks, but again, they can be given a cash bonus to offset the impact. They will in the end be better off -- as evidenced by their willingness to forego expensive parking for more cash but more walking.

I am going to be pushing this one.

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Monica Hall said...

What happened to your proposal? I think problems like this should be talked about and have a proper thesis arrangement in the government. It does not only a problem to one person, but also on the people around him/her. Anyway, hope to hear what the outcome of your endeavor was.

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