Friday, April 30, 2010
Economist's Notebook: Pigovian Taxes and Studded Tires
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.