Tuesday, June 30, 2009

Behavioral game theory on the MA Turnpike

A recent story in the Boston Globe sounds like a behavioral economics seminar on transaction costs: why are a third of the tolls on the Massachusetts Turnpike still paid (more slowly and expensively) in cash, rather than using the (now free) transponders?
Some still slow to make the move to Fast Lane: 1 in 3 tollpayers paying at booth
"The Massachusetts Turnpike Authority has made strides in signing people up to use Fast Lane, with 66 percent of tolls now paid electronically, up from 62 percent in January. But the 34 percent who use cash, and pay higher tolls at booths inside Greater Boston to do so, remain a bit of a mystery."
"The survey LeBovidge conducted found that the biggest hurdle to signing up more people used to be cost, accounting for about 75 percent of the abstainers. About 7 percent worried about handing personal data to the Turnpike Authority or having their movements tracked. Some remaining drivers - not reflected in the survey - come from out of state and might not have an E-Z Pass account usable in Massachusetts. Other commuters do not have a checking account or credit card.
"If they wait in cash lanes enough times, most technophobes get converted. Fast Lane usage at the Allston-Brighton booths rises to 86 percent during morning rush hour into Boston. Massive traffic jams also do the trick: The Easter backup helped drive signups to 45,905 in May, compared with 10,875 during the same month last year."

One reason this is an interesting problem is that it's not just about individual choice, there's an element of behavioral game theory in this kind of slow learning. Cash payers produce congestion--negative reinforcement--for other cash payers. When lines at the toll booths get really long, even the EZ Pass users have to wait on line to get to the toll booths. So slower payers provide a negative externality to everyone on the busiest days.

In a forthcoming paper in the QJE, Amy Finkelstein raises the possibility that those cash payers may also provide a small positive externality by being more politically sensitive to changes in the tolls: EZ-Tax: Tax Salience and Tax Rates.
"Abstract: This paper examines whether the salience of a tax system affects equilibrium tax rates. I analyze how tolls change after toll facilities adopt electronic toll collection (ETC); drivers are substantially less aware of tolls paid electronically. I estimate that, in steady state, tolls are 20 to 40 percent higher than they would have been without ETC. Consistent with a salience-based explanation for this toll increase, I find that under ETC, driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar. Alternative explanations appear unlikely to be able to explain the findings."

So the next time you are stuck on the Mass Pike behind a long line of drivers waiting to pay their tolls, try to remember that there may be a small benefit to having the toll be so salient.


michael webster said...

To convert the cash toll payers:

Suppose a monthly pass is $100.

Sell them a continuing monthly pass, with an opt out, and rebate them the difference between their actual use and the $100. Do this rebate for 6 months, or until the rebate is zero. Then simply charge them the continuing fee - they will be used to it by now.

Make sure you explain that the administration charges in your contract.

Chris Hibbert said...

I wouldn't buy a pass that guaranteed my travel would be tracked. The last time I investigated the similar programs in California, there was no way to buy a pass with cash and refill it anonymously. The only option was a credit card account that would automatically be debited when the account is low.

I understand that it's still possible for traffic cams or other technology to record traffic and remember my travel history, but that kind of opportunistic recording strikes me as a different kind of thing than a database that records every trip.

Charlie Gibbons said...

I find it a bit puzzling, too. I recently asked a friend on a road trip why he doesn't have one. The way that EZ-Pass works is that some amount ($50, say) is deducted from your checking/credit account and placed into an EZ-Pass account. Tolls draw this down near zero and the EZ-Pass account is refilled. He went through the tolls infrequently and didn't want to have cash tied up in the EZ-Pass account. Addtionally, he says that he usually does not encounter congestion (we passed through tolls on the NY Thruway without delay).

So it would be important to know what fraction of the 34% are infrequent travelers. The smaller fraction (16%) that don't have the pass during the commute may be suggestive that frequency of travel may play a role.

michael webster said...

@Chris Hibbert - sounds like the type of security you want is unavailable except for cash transactions. Do you think that you are representative of the cash payers?

@Charlie Gibbons - I think that you are right: the loss of $50 is seen not as a gain against spending an uncertain cash amount in the future. This could be changed by having E-Z pass print out your expected savings. Or even having E-Z calculate based on your infrequent trips when it is reasonable to pre-pay.