[sustran] Is Free Parking a Subsidy to Driving?

Todd Litman litman at islandnet.com
Thu Jul 1 21:14:46 JST 1999


Walter lays out the Neoclassical arguement for free parking: the fact that
businesses offer this benefit indicates that it must be economially
efficient. "The proof is in the pudding." This assumes that
retail/employement/land use/transportation market is efficient: which means
that producers and consumers have choice, competition, and information. Let
me make a few points about the real market for parking.

* For the last century, most parking has been provided to motorists for
free or significantly underpriced. This is required by zoning codes,
provided by municipal governments, and supported by tax policies that
provide the equivalent of a matching grant, in terms of income tax
exemptions, to companies that provide free parking. This has made free
parking the standard. Motorists expect it. Even if individual businesses
were allowed to reduce their parking, most would not because it places them
at a competitive disadvantage with other firms. The result is a highly
distorted market that is unlikely to quickly correct itself even if some
constraints (such as zoning requirements and tax exemptions) were eliminated.

* Free or underpriced parking is primarily an economic transfer; somebody
pays while somebody else recieves. The only net economic benefit is the
transaction cost savings: malls and employers avoid having to collect
parking fees, and consumers avoid having to pay the fees. That is a
legitimate savings, but these costs could be greatly reduced with
electronic charging, which would allow motorists to easily pay for just the
amount of parking they use. 

* There may be economies of agglomeration from big-box stores, but there
are offsetting diseconomies. For example, the retail efficiency of arterial
shopping strips reduce the overall efficiency of traditional downtowns: The
efficiency of being able to walk to a store near your house are lost as
they are replaced by fewer, centralized retail centers that require
automobile access. Thus, at least part of the savings in lower prices are
offset by increased transportation costs, including costs to consumers
(going from a one to a two car household) and to society (more traffic
requires more road capacity and produces more air pollution and accidents).

* I think it is a mistake to focus too much on the term "subsidy", which
happens to be a hot-button word, although there clearly is at least some
cross-subsidy from people who use alternative modes (walking, bicycling,
transit) to motorists. Free and underpriced parking is an external cost (a
cost that consumers impose but do not individually bear) and a market
distortion that encourages increased automobile use. Because the external
costs of automobile use are cummulative, underpricing parking also
increases congestion, roadway costs, accidents and environmental impacts
from driving.

-Todd Litman


At 10:51 AM 6/30/99 -0400, Walter Hook wrote:
>I still don't buy that private shopping center parking is subsidizing
motorists
>except for tax breaks for employer provided parking and in the case that
>regulations are forcing developers to build more parking units than they
>otherwise would, which I would guess is rare in the US.  I'm going to lay out
>what I think the Neoclassical argument would be, and see if anyone is
>convinced.
>
>The Shopping Center owners will build additional units of parking so long as
>the marginal revenue they receive from that last customer is greater than the
>marginal cost of providing the additional parking.  If the marginal
revenue of
>providing that last unit of parking is less than its marginal cost, a
shopping
>center owner will not build it or he will be losing money.  Unfortunately, in
>the U.S., bus passengers tend to be low income people.  As such, they
probably
>spend less at shops than motorists, so even though the marginal cost of
>providing parking to them his higher, the marginal revenue earned from
them is
>also probably higher.   Unless the marginal revenue is lower than the
marginal
>cost, I don't think you have much of a case for a subsidy or an externality.
>
>The value of the land (and the land rent) on which the shopping center
sits is
>largely a reflection of its accessibility.  The less people need to spend to
>reach the shopping mall, (ie. if 90% of the people are able to walk to the
>shopping mall), then the land rent is going to be much higher than in the
case
>where most peole will have to drive.
>
>The theory of the bid-rent curve indicates that total rent plus total travel
>costs will tend toward a constant in a metropolitan area.  The cheaper the
>place is to reach, (ie. easy to get there by transit and bus) the higher the
>rent will be.
>
>Therefore, whatever mode you take, the cost of your access will be
reflected in
>the land rent and passed on to the products you buy.
>
>>From the shopper's point of view, they will shop at the store which
offers the
>items they want at the lowest cost plus the lowest cost of reaching the
>store.   If a store was spending more money on parking than it was receiving
>from the motorists who use the parking, its prices would have to be higher
than
>at other stores which were more pedestrian friendly.  Thus, they would lose
>their business, as these shoppers would shop somewhere else, perhaps in a
>downtown shopping center without any parking.  Of course, these downtown
shops
>and residents of higher density areas are paying greater rent directly
because
>their transport costs are lower.
>
>
>> Externalities (or "subsidies") can be defined in three ways:
>>
>> 1. Marginal
>> This requires that the prices (what consumers pay directly for a good)
>> reflect full marginal costs. This is the only definition to use when
>> analyzing economic efficiency
>
>Efficiency is achieved only when the price reaches a level where marginal
>revenues equal marginal costs and average costs.  If the price equals
marginal
>revenues and marginal costs at a point below average costs, you have a strong
>case for a subsidy.



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