Traffic Jam Economics

I-495 (AKA the Beltway) is the interstate that runs around Washington DC from Maryland to Virginia.  Heading toward Northern Virginia, there is a tolled express lane; for a price, you can use this express lane to try to avoid the massive amounts of traffic I-495 gets any given day.  What’s neat about this toll is it is dynamic, that is the pricing reflects the volume of traffic.  Yesterday, I was driving from Fairfax, VA to Silver Spring, MD.  In the middle of the day, the traffic was light.  The toll to drive express from I-66 to the MD border was around $2 (sorry, I don’t remember the exact price).  However, on my way back during rush hour, the toll was around $20 for the same distance!  Why would this be?

Prices are a rationing system.  The higher price of the toll reflects higher demand for the express lane due to increased traffic on I-495.  Drivers on I-495 are faced with a choice: pay $20 and (possibly) get to their destination faster or sit in traffic on the main highway.  The higher the toll, the lower the relative cost of sitting in traffic.  This allows the express lane to be used for those to whom the $20 is the lower cost (those in a rush, for example).

Another interesting note is not everyone in the Express Lane were rich. There were a lot of Benz and BMWs and other luxury cars sitting in traffic, and there were a lot of middle-range cars in the express lane.  This is an example of the economic concept that value, not ability to pay, determines whether an action is taken.  For those sitting in the traffic, the $20 toll was high enough to discourage the use of the express lane, even though they likely could have afforded it.

The moral of the story: there are benefits to sitting in traffic.

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