HOV Lane Proposal = Law and Economics Lesson of the Week

I saw a story on the local news in Massachusetts the other day that provided a perfect subject for a discussion on law and economics. In the story, the reporter discussed a proposal some Bay State lawmakers have mooted under which drivers would be charged a fee for use of what the state calls the HOV lane (it stands for high-occupancy vehicle; I have also seen them referred to as carpool lanes). Those who advocate for the change suggest that it would create income for a state which is mired in budget issues. From Wikipedia (which regular readers will of course know is a perfectly valid source):

A high-occupancy vehicle lane...is a restricted traffic lane reserved at peak travel times or longer for exclusive use of vehicles with a driver and one or more passengers, including carpools, vanpools and transit buses. The normal minimum occupancy level is 2 or 3 occupants...HOV lanes are normally created to increase higher average vehicle occupancy and person throughput with the goal of reducing traffic congestion and air pollution.

The benefit to the driver is clear; quicker commute times. There are other benefits as well. The positive externality for society is cleaner air. There is even a free-rider benefit with regards to congestion for commuters who don't use the lane as drivers who do (as well as their passengers) are no longer on the main highway.

Meanwhile the price of admission can be seen as the hassle it takes to establish and schedule carpools, additional driving to pick up passengers, and the loss of freedom for passengers who don't have their own vehicles. In short, in exchange for effort and the loss of some flexibility, workers can cut down on their commute times and society gets cleaner air.

However, if the law were to change, and a toll were charged for use of the lane, it seems very likely that the law of unintended consequences would rear its head swiftly and aggressively. Using our trusty old supply/demand chart tells us that increasing the price of something decreases the demand for it. In this case, adding a monetary fee to the now existing costs of organizing the pools will likely cause many current users to determine that taking the lane is no longer worth it. They will use a replacement good (the regular highway) and save time and effort (as well as the toll costs) in doing so.

If there are less people using the lane, then the increased revenues that advocates are touting are surely being overestimated. In addition, if people, now driving solo, substitute the free main road for the HOV, then the very reason for having an HOV lane, cleaner air, gets undermined (kind of a big deal if stories like this are true). And to top it all off, congestion will increase. Less revenue than anticipated, negative externalities and unhappy commuters are the most likely outcomes of the tolled HOV lane proposal. Maybe proponents should take an introductory economics class, or even better, join the ranks of our regular readers, before going down this road.