Friday, April 30, 2010

Economist's Notebook: Pigovian Taxes and Studded Tires

The always entertaining (and bike commuting - isn't that oh so Portland?) commuter columnist for The Oregonian, Joseph Rose, has touched on another of the numerous third rails of Oregon politics: studded tires (self-serve gas is another - but once the economy recovers, I am back on my high horse about it).  He wonders whether, given the extreme wear and tear the tires impose on roads, these tires should be banned in Oregon and he reports on a real effort to have such a ban enacted.  Apparently Minnesota and Wisconsin have bans in place. [I lived for many years in Wisconsin and never though much about studded or even winter tires as most folks just drive more slowly and carefully to account for the weather.  I was always amused to come to Oregon for my winter break and hear the clickety-clack of studs on dry pavement.]

Rose reports that the studs do $40 million dollars of annual damage statewide and you can see the effects on the highways. There was a time when I was an undergrad at Lewis & Clark that I could drive back to campus from downtown on I-5 and not steer.  My little VW Rabbit would just track up the curves in the ruts (I was young and poor and delighted in the cheap amusements).  Besides, rubber snow tires are almost as good without the extra wear and tear so there is little reason to allow them.

In fact he has a poll that asks that question: should studded tires be banned in Oregon? [At last looks like about 3 to 1 in favor of a ban]

But to an economist the optimal solution is obvious and it is not a ban.  There are probably some folks out there for whom studded tires are very, very useful (or at least they think they are) and for those folks a ban would be a real hardship, but for most folks they aren't really doing that much.  But given the added wear and tear the impose on roads it is efficient to include in the price of the tires the cost of the added damage to roadways.  Given the $40 million figure mentioned above, it is clear that there are estimates of the actual monetary damage they do.  Now, if they are reducing accidents you have to factor this in as well, but my guess is that this is probably actual outweighed by the additional accidents on wet roads on which studded tires are much worse.

Regardless, the true net additional cost of studded tires is not that hard to estimate.  A Pigovian tax that adds to the purchase price of tires the external costs they impose will return efficiency to the market.  Only those who really do value the tires will buy them after the tax is imposed, and the taxes they pay will provide revenue to fix rutted roads more quickly.

There you go, problem solved.  You are all welcome.

7 comments:

Allan said...

Problem not solved. Folks will just buy the tires elsewhere and bring them in state. If this were done we would need a fee for using studs each year. This would also solve the problem of folks being grandfathered in.

Patrick Emerson said...

Good points and I had thought of that but in my haste did not mention. The tax would need to be in the form of a sticker or some such thing, issued by the state of Oregon.

Ralph said...

Shocking a bicycle commuter complaining about tires on cars and hiding behind being a fiscal conservative to backup his point, yep, how Portland indeed. I wonder if he is a fiscal conservative when it comes to the sewer fees being used for bicycle project.

Joseph said...

To be fair, I'm not just a bike commuter. I love my Volvo wagons -- one of which used to have snow tires every winter. I bike to save on parking and to keep the forty something body in shape. I also ride transit a lot. So let's keep the silly assumptions in check. Thanks for the mention, Patrick.

Patrick Emerson said...

I mentioned the bike commuter thing in admiration, not castigation. I think it is appropriate for a Oregonian commuting columnist to commute by bike as well as car.

Jeff Alworth said...

I agree with 淑慧. But I also have a question--maybe for Ralph, but maybe Patrick has a economists-approved theory, too. What's a fiscal conservative. It seems like Patrick's suggestion is perfectly conservative: it preserves liberty (both the consumers' and retailers'), and embraces paying for public services.

I understand old definitions of liberal and conservative with regard to markets versus government run collectivism. Yet when issues like this arise, it seems like there's a knee-jerk reaction: taxes equal government equals liberal.

Put it another way: how would a conservative structure income streams to pay for road repair (assuming, of course, the type of conservative would admit that building and maintaining roads are a legitimate government responsibilities)?

Ralph said...

Jeff,

My response was to the article that was written on the Oregonian's website, not to Patrcik's suggestion. There are many good references on the Internet for defining fiscal conservative. (The thrust of the authors argument is reducing spending on road maintenance) A tax to require the user to pay for the amount of damage the studded tires produce is the most logical response. The suggestion of an outright ban on studded tires when the cost can easily be born by the user seems a bit reactionary to me.