Studded Tires, Biking and Pigovian Taxes

A few comments in the blog and through e-mail have prompted me to clarify a few things about my take on the issue and Pigovian taxes in general.

First, let's be clear - a tax on studded tires would NOT BE a new tax. The tax is already there - it is imposed on all of us to pay for the damage studded tires do to our roads. The specific Pigovian tax would do two things: it would assess the tax on the people who engage in the activity that creates the social cost and, more importantly perhaps, it would DISCOURAGE that same activity. This is why such taxes are efficient: in the end only those who really need studded tires will use them and they will pay for the additional wear and tear to the roads.  As a result we should see less of the activity that has negative external costs.

Also in the comments the issue of bikes arose.  As I have stated before, it is likely that biking creates a net social benefit, not a net social cost.   Improved health, lower emissions, less congestion and less wear and tear on the roadways could reasonably be expected from increased biking, so by the same principle we should be subsidizing bike riding.  Which we do of course by investing money in bike paths, bike lanes, bike boulevards, etc.  The Pigovian principle suggests that these are entirely appropriate expenditures.

And finally, Jeff in the comments wonders why such a tax would be considered a 'liberal' fix to the problem.  He thinks of it as a 'conservative' response - just as a number of conservative economists, most notably Greg Mankiw, have repeatedly endorsed Pigovian taxes, this preserves the choice of studded tires for those who really want or need them but it places the responsibility of paying for the added wear and tear on the very user themselves and returns efficiency to the market.  It is a market based response that preserves individual liberty but requires individual responsibility.

To me it is just the right economic response.    

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.