Photo: respresMinneapolis allows single-occupancy cars to use its HOV expressway lanes for a price, which is typically between $1.50 and $2.50 on I-35W during morning rush-hour between the airport and downtown. The price seems to be higher when traffic in the other lanes is heavier — the city is sensibly applying peak-load pricing.
Yesterday, it was snowing; traffic in the four regular lanes was crawling, and the city had posted a price of $8 for use of the HOV lane — but the HOV lane was nearly empty! Apparently, the equilibrium price, even in a snowstorm, is somewhat below $8, which may seem surprising. Say it takes 30 minutes to get from the airport to downtown with congestion, as compared to 10 minutes without; surely many drivers’ value of time (saving 20 minutes) exceeds $36 pre-tax/hour ([$8 x 60/20]/[1-.33], where .33 is the marginal tax rate). Probably so, but a lot of research shows that people think about commuting time differently and require a savings equal to more than three times their wage. So maybe the empty HOV lane is not surprising. (HT: DJH)
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Isn’t it the MARGINAL value of time that is important? A salaried worker will not change their income by working a little more or less. Why do economists always make this econ 101 mistake?
People usually don’t do dollar per minute calculations, they instead have in mind a price point either in dollars ($5, $10, whatever) or in percentage (10% whatever) savings to feel it’s worth it to go out of the way to change a routine, shop at a different store, try a different product, etc., In this case it’s the opposite, a cap of how much money one will spend to save time. I bet if it were $5 there would be a lot of people in the HOV.
Figuring out the value of one’s time only matters if one can use that time to do something that furthers one’s work. If you’ve got the kind of job that there is always work to do (scientist, business, etc) then you may want the time because it accomplishes more toward your goals, which may result in some kind of monetary or career recognition reward. If you work a fixed shift at the shoe store, it does not affect your job at all whether you took ten or forty minutes to drive there so long as you are on time.
This is why it did not suprise me to hear on the Freakonomics radio bit on NPR a while back that lower income people save more on food…if you ask an engineer whether he or she is going to spend half an hour doing work on a project for the job, or clipping coupons, which do you think that engineer will think is ultimately more productive with the time? And if you work really long hours, which many highly paid professionals do, you might rather lose out on $4 of coupons in order to have half an hour of leisure.
So, I can show up to work late one day with a ready-made excuse, or I can pay $8 for the privelege of being one of the first people to work that day.
Tough choice.
It isn’t the value of work time or whether or not you would be working, it is how you value your time generally that matters. Wages are just a reference point in my view to figure out human behavior as referenced above. It could be work time, but it might be something else that you value enough that you want to spend less time on the road. Certainly there are specific examples where the decision is easy. Suppose you will be charged $25 if you are late for day care pick-up and don’t know if you are going to be able to make it on time. If the “free-flow” lane on MnPASS costs $5, we know people will make that decision and will see the value.
Very simply. The price was just too high.
Once they saw the lane was empty, the price should have dropped to something like $5.00 and people would have started to use the lane. If no people at $5.00, go down to $4.00.
The goal is to have the lanes used to aid congestion, cut down on fuel use and lower pollution. The goal is not to set a price so high that no one will use it.
Think like a good business owner trying to encourage consumers–not like a (government controlled) monopolist trying to gouge the public.
I would assume that a large portion of people who earn in excess of $36/hr are not actually paid by the hour.
Lots of interesting speculation, but it seems to mostly ignore the biggest reason that people didn’t use the HOV/premium lane — you have to arrange to get a transponder for payment in advance. I’ll bet there are lots of people who would have gladly paid for a quick ride that day, but who never signed up to get the transponder (very few people seem to have them). The next day, maybe a few signed up, and others saw no immediate value (time-discounting) and thus put it off again only to regret it some time in the future.
Bob #12 spot on….there are many reasons to pay for speed. You have tickets to a $100 sporting event you don’t want to miss. Or you have tickets to a $0 event you don’t want to be late for…..like your kid’s school concert.
But to DH’s point…..someone to whom money is no object wouldn’t think twice about paying $8. A $10/hr wage earner may simply have to be late.