Question

A study on Los Angeles freeways found delays of 0.8 million hours a year cost $16.3 million in lost time and waste 435,700 gallons of fuel. What is the externality described? What are the external costs? How could toll roads (pay to drive) and high parking fees reduce congestion on Los Angeles roads? If toll roads and parking charges cut commute times, would the L.A. road system be more efficient?

Answer 1

Externality described here is negative externality imposed by traffic congestion on the highway in the form of fuel wastage and time lost standing in traffic

External cost = Value of fuel + $16.3 M in lost time

Toll roads and high parking fees would increase marginal private cost of using the highway and make it closer to marginal social cost, leading to reduction in highway usage to its efficient level.

Yes, if toll roads and parking charges cut commute times, it will reduce external cost of highway usage and bring it down to its efficient level, where marginal social benefit equals marginal social cost.