Other costs are more subtle or indirect and we give those a lot less consideration because we tend to form habits around those other costs that save us from having to think about them each time we travel. For example, if I am going to the store to buy groceries I could drive my car, arrange for an Uber ride, walk to the store, or ride my bike. All of those options aside from the Uber ride have zero out-of-pocket costs but they do have different costs in terms of time. So if I’m in a hurry, the time cost of walking may be too great for me to take that option seriously. But there are also indirect costs like exertion which people might value positively if they like exercise and fresh air, or negatively if they dislike those things or are disabled in some way.
Driving a car has a boatload of indirect costs such as depreciation, maintenance and taxes, which we all understand that we pay but which are not associated with any given trip so we tend to minimize their impact on our decision. My point is that while we understand these costs we tend to form transportation habits that eliminate the need for us to think about them for every trip. Unfortunately, these habits can result in sub-optimal decisions. On a beautiful day when I am unscheduled, a walk to the store might actually be my best option, but I generally end up driving my car without really considering the walking option because I am in the habit of doing so.
Finally, there are costs that are “hidden” because most people rarely think about them or even connect those costs to their own transportation decisions. If I drive my car to the store to buy groceries, for example, I add to the congestion of the public streets that I share with other drivers and I add to the pollution of the air which all of us breathe. These are costs that I impose partly on myself, but mainly on others in the community. While real, these costs are abstract enough and my contribution is tiny enough that I am likely to write them off as too insignificant to worry about if I even think of them at all.
Although we might ignore most of these costs when we make individual decisions, city governments (and State and Federal governments as well) should be giving all transportation costs a great deal of thought before they make decisions about transportation improvements and their operating budgets. Unfortunately, governments fall into habits just like we do as individuals which often leads to sub-optimal decision making – and in some cases not just sub-optimal but downright awful. My goal with this post is to shine some light on transportation costs – particularly direct out-of-pocket costs and time – in order to shift the way we think about the options we have for moving from point A to point B and to potentially shift the way governments set transportation policy.
Place Matters
Before I get into the nitty gritty of transportation pricing, it is important to point out that there is no one-size-fits-all solution. Your location at the time you are making a transportation decision will have an enormous impact on what decision is best. A common example in midwestern cities is the proximity to transit. Midwestern cities are so spread out that the distance from my starting point to the nearest transit stop and the distance from the transit drop-off point to my destination can be so great as to disqualify the transit option as a serious contender. If the beginning and ending walk is just two or three blocks, then transit might well be a smart choice but the odds of that happening in most midwestern cities is small.
In very large cities such as New York, Chicago or Boston, the cost of parking – both the time-cost of finding a space and the out-of-pocket cost of the parking itself – is so large that driving is far less viable than in smaller cities. Parking can be so expensive and inconvenient that even owning a car is financially unattractive which means that driving is seldom considered as a transportation choice. Keep this point in mind as you read the rest of this post. I’m writing primarily from the perspective of someone who lives in Kansas City, and while that might be relevant to many other midwesterners, it will be less applicable to those who live in much larger or much smaller locations.
Technology Has Changed Pricing
The second caveat to keep in mind is that technology has changed the entire pricing landscape in transportation (and most other industries as well). The payment platform that has developed around the internet and our smartphones has not only made it more convenient to pay for transportation, it has also changed how much we pay and what exactly we are buying when we travel. Over the past thirty years, the rise of internet commerce has largely eliminated the role of the travel agent which has reduced the cost of flying by cutting out an unnecessary middle man. Now smartphones have largely eliminated paper tickets and have enabled the travel industry to shift to “al a carte” pricing. Paying for checked luggage, snacks, drinks and WiFi access with a few taps on our phones has made possible a concept that previously would have been too convoluted to be feasible. We can now customize our transportation choices and pay for exactly what we want. This trend is so powerful it is essentially forcing Southwest Airlines to change their entire business model.
Technology is also changing the way we drive. Tag sensors, online toll accounts, and now license plate readers are rapidly eliminating the need for toll booth operators and are increasing opportunities for governments to charge for the privilege of driving on certain roads or in certain lanes. Many locations implemented High-Occupancy Vehicle (HOV) lanes to encourage car-pooling as a way to reduce congestion but those lanes are often underutilized. So some HOV lanes are being converted to High-Occupancy Tolling (HOT) lanes which use modern electronic tolling systems to allow single occupant vehicles to use the restricted lanes simply by paying a toll.
Even the lowly parking meter has evolved to allow payment via your smartphone instead of requiring you to dig for loose coins. The change (no pun intended) has not only allowed cities to charge more for parking, it has also made enforcement easier and enabled convenience features such as phone notifications when your time is almost up. Collecting small payments, such as for metered parking, used to be so inefficient that it often was not worth the effort. Now, collecting a small payment is just as easy as collecting a large one which opens up new potential revenue streams.
An underappreciated aspect of all of this technology is that it allows dynamic pricing of just about every transportation option. This changes both how we travel and when we travel. Pricing that changes instantly in response to demand means that transportation infrastructure can be used more efficiently by smoothing out normal peaks and valleys. Many airports, for example, are busy in the early morning hours not because people like flying at 6:00 AM but because that’s when the cheapest flights are offered. The result is a win-win: people spend less money and airports spread out demand to avoid congestion.
The Hidden Cost of Free
We all like a bargain, and there is no better bargain than free. Except, of course, that very few things are really free – someone ends up paying and that someone is almost always you. That is particularly true with transportation choices, some of which appear to be free but really aren’t. The misconception of free is sometimes beneficial or at least harmless, but it often skews our decision making in ways which are detrimental to ourselves and our cities.
There is a basic concept in economics that states that when people are given unfettered access to a finite but valuable resource, they will tend to overuse it to the point where it is damaged or destroyed. It is not rational for any individual to exercise restraint because someone else will simply supplant them, but the inevitable result is bad for everyone. This is often referred to as the “tragedy of the commons” and I wrote an entire post about it roughly eighteen months ago (Post 39).
Mass Transit. In the world of transportation, there are three primary examples of things that appear to be free but really aren’t. The first is the occasional mass transit service that is provided at no cost to riders. For example, I recently rode Miami’s Metromover which is a 4.4-mile elevated tram that loops through the frequently congested downtown area and a few adjacent neighborhoods. I found it to be useful, although as a tourist it seemed too limited in its geographic coverage. The locals must find it more useful because it averages more than 20,000 riders per day which is trending up over the past several years, but still a little short of the pre-pandemic year of 2019. As I understand it, the system is funded primarily by a special sales tax levy, supplemented by general tax revenue and federal grants.
Similarly, Kansas City has a streetcar line that is also free to ride. It follows a two-mile out-and-back route that primarily follows Main Street. Construction is nearly complete on two extensions to that route which will triple its length to just over 6 miles. Ridership has grown steadily over the past several years and now averages over 4,700 rides per day. As with the Metromover, Streetcar ridership dropped steeply during the pandemic and is just now approaching 2019 numbers. Funding comes from additional sales tax and property tax levies within a Transportation Development District that surrounds the streetcar route.
Transit services on a limited route such as Metromover and KC Streetcar may have occasional riders who are simply satisfying their curiosity, but generally they are free of the “overuse” issues that often plague free services. There is no economic or personal advantage to be gained unless you actually want to travel to some point along the route, which is a naturally limiting set of people. Despite the surface appearance, however, the rides are not free as I pointed out above. In theory, the businesses and property owners who pay the added levies required for these transit services get a reasonable return on their investment from increased business or from increased property valuation, although that is certainly up for debate. As with nearly every tax, my guess is that some reap benefits that exceed what they pay while others fall short.
Public roads and highways. The second transportation service that has the perception of being free is the use of public streets and highways. Toll roads and bridges are obvious exceptions, of course, but generally people can drive pretty much anywhere without an out-of-pocket expense. In contrast to limited-route transit, the free use of public streets does influence behavior in ways that often causes significant congestion and thus damages the value of the street or highway as a public asset. The phenomenon is known as “induced demand” and I discuss it at some length in the earlier post mentioned above. I won’t go into detail here but all of us have experienced bumper to bumper traffic that approaches gridlock even on highways that have recently been widened.
Recent events in New York City provide an interesting illustration of the impact of “free” streets versus streets that have an explicit out-of-pocket cost. In January of this year, New York City implemented a fee known as “congestion pricing” on vehicles entering Manhattan south of 60th Street. The amount charged is $9 for cars, SUVs and light trucks during peak hours (Monday through Friday, 5 a.m. through 9 p.m.). The fee falls to $2.25 in off-peak hours. Specialty vehicles such as large trucks have separate pricing.
I have a modest level of experience with Manhattan traffic because I frequently travel to visit my daughter and her family in Hoboken, New Jersey. I typically fly into LaGuardia Airport and take an Uber to a hotel near their apartment. The trip takes me through Brooklyn, into Manhattan via the Midtown Tunnel, across Manhattan at roughly 34th Street, and into New Jersey via the Lincoln Tunnel. During the day, traffic is heavy virtually the entire trip, but prior to this year, the portion across Manhattan was excruciatingly slow. The distance from tunnel exit to tunnel entrance is less than two miles but it could often take nearly 30 minutes. On a trip in late March, the same segment took just over 15 minutes – the difference was amazing.
It is way too early to draw definite conclusions from the congestion pricing program, but early results from the first quarter of the year are extremely promising. Approximately 10 percent fewer vehicles are entering the congestion pricing zone each weekday, congestion levels are down, and average travel speeds are up. Ridership levels on mass transit systems leading into the city are also up as would be expected. What is unexpected is that restaurant reservations, Broadway ticket sales, and general retail sales are also up which means that with congestion down more people are willing to come into the city to do business. Anecdotally, delivery drivers are wasting less time, emergency vehicles arrive sooner, and complaints about “excessive honking” are down substantially. [1, 2 ] Finally, the system has raised $159 million in the first three months (to be spent on transit improvements), an amount that is within 1 percent of projections.
Parking. In midwestern cities, parking is typically provided at no direct cost to drivers. There are exceptions in areas where demand is high such as downtown business districts or event venues, but those exceptions are rare. The perception that parking is almost always going to be free and plentiful affects our transportation choices – with a clear bias toward driving – although most of us don’t think of parking explicitly when making a trip. We just assume that parking will be free and readily available at the end of our trip and if it is not we are surprised, annoyed or both.
The result is that city planners, developers and landowners have a difficult time determining the optimal amount of parking to provide. When a valuable commodity is offered on the open market, the price helps determine the quantity of that product that is needed. Giving the commodity away for free means that market signal is lost and the result is that both demand and supply are likely to be overstated.
I have written an entire article on the problems associated with over-supplying parking (Post 52) so I won’t go into great detail here. The bottom line is that the perception of free parking is a form of market distortion that warps our behavior and harms our cities.
The Collective Good Versus Individual Choice
When we buy a ticket to fly from one city to another, most of us understand that the price of that ticket helps cover the cost of the airplane, the aviation fuel, the pilots, and a variety of other direct costs, as well as leaving a little money left over for profit that is distributed to the airline shareholders. What most people don’t understand is that commercial air travel is subsidized by the government. In fact, virtually every form of transportation is subsidized by the government. Even people who walk to work are walking on sidewalks that someone else paid for.
That subsidy is not necessarily a bad thing. After all, being able to move people and goods from one place to another is essential to our economy and our way of life. However, many people have the perception that they are “paying their own way” when they make transportation choices when, in fact, they are not.
There are two issues related to our system of transportation subsidies that deserve more attention than they typically receive. First, the amount of subsidy varies wildly from one form of transportation to another and from one place to another. How do we know if we are subsiding in the right amounts? Unfortunately, transportation subsidies come from so many sources and in so many forms that it would be difficult for anyone to accurately calculate the subsidy per passenger mile or similar statistics – and certainly not the average user.
Second, the indirect costs and benefits associated with each form of transportation also vary wildly and are often difficult to quantify. Obviously there is a value in moving people and things from place to place and there are direct costs in terms of time and money. But the deeper you dig into the topic, the fuzzier and fuzzier the issues become. Mass transit, for example, has been shown to reduce both traffic congestion and air pollution. [3] How exactly do we place a value on those benefits? Building bike lanes is thought to provide health benefits, reduce bicycle fatalities, and reduce greenhouse gas emissions. Is anyone doing the math in a systematic way to balance the subsidies against the advantages? Not that I know of.
To make matters worse, transit, bike lanes and sidewalks all increase the mobility of people who can’t afford to drive a car or who can’t drive a car due to age or disability. There is a definite value to both our economy and our society that flows from enabling that segment of our community to be independently mobile. How much subsidy is that benefit worth? I have no clue and I doubt anyone else does either.
The Bottom Line
The end result is that all of us make transportation decisions every day without even a rudimentary understanding of the cost (both obvious and hidden) of the options at our disposal. Most of us, in fact, not only don’t know the answer, we don't even take time to think about the question. Would knowing the answer change our behavior? Maybe or maybe not. The majority would probably choose whatever option seems most convenient regardless of the true price, but there is clearly a significant minority who are sensitive to cost and would adjust their behavior if the system were less opaque.
In addition, there are leaders at every level of government that routinely make decisions on infrastructure improvements and financial support of various transportation systems without a true accounting of the efficiency or fairness of those decisions. They are practicing what former Yale professor Charles Lindblom called the “science of muddling through” – a decision making process based on making incremental changes to what has been done in the past rather than a comprehensive analysis. [4] This process acknowledges the complexity of many policy decisions and the limitation of human analytical abilities, but it rarely questions the efficacy of past patterns or whether changes to underlying conditions might warrant a radically new distribution of resources. Instead, we muddle through from year to year with only small changes at the margins, and even those small adjustments are driven more by the constituencies with the loudest voices rather than careful study.
Given the huge impact that transportation has on city building, this decision to muddle through means that our cities are largely stuck in the same form that they have had for the past hundred years or more. Think of the enormous changes that have occurred in technology, the economy, and society in general during that time span. If we were designing cities from scratch would we still copy patterns from a hundred years ago or would we balance transportation options differently? Muddling through may be politically expedient but I suspect that it is making the goal of strong, resilient cities harder to reach rather than easier.
Notes:
1. Christopher Bananos; “How Well Is Congestion Pricing Doing? Very.”; April 2025; New York/Curbed; https://www.curbed.com/article/100-dayscongestion-pricing-mta-results.html
2. “Clearer roads, faster trips: The data behind NYC’s congestion pricing success”; April 2025; TomTom Blog; https://www.tomtom.com/newsroom/explainers-and-insights/the-data-behind-nyc-s-congestion-pricing-success/
3. Robbie Webber; “Contrarian research: Transit relieves congestion, but park-and-rides do not”; April 2013; State Smart Transportation Initiative; https://ssti.us/2013/04/08/contrarian-research-transit-relieves-congestion-but-park-and-rides-do-not/#:~:text=Michael%20Anderson%2C%20an%20economist%20at,congestion%20would%20continue%20to%20drive.
4. Charles E. Lindblom; “The Science of ‘Muddling Through’ “; 19 Public Administration Review 79; 1959.
