Parking Spaces: What is the Free-Market Equilibrium?
In response to Robin Hanson, I think Arnold Kling makes some good points about why government intervention in parking may be necessary to resolve externality problems. Arnold doesn't say that government intervention is necessary, and he would likely resist that interpretation, a Coasian bargaining solution is the outcome in his scenario. But the usual sorts of considerations, i.e. transactions costs, unclear property rights regarding street parking in front of residences -- some people, for example, use cones and other devices to save parking spots -- and other barriers may prevent the Coasian bargaining outcome. (Robin Hanson doesn't like what I wrote either, though, again, I was trying to make a general point about equity versus efficiency and probably should have chosen another example besides parking near the ocean to make that point):
Parking Spaces: What is the Free-Market Equilibrium?, by Arnold Kling: Robin Hanson writes,I didn't see Tyler favoring forcing prices above marginal cost, just opposing laws requiring excess supply.So, there are two issues.
a. How much land should be devoted to parking spaces?
b. Given the answer to (a), what should be the price for parking?
I argue that for (b) the answer is often zero. A higher price would simply result in unused parking places, which does not increase welfare. Robin is falling back on issue (a), and here the thinking is that the state provides, either directly or through regulation, more parking spaces than are optimal.
Suppose there were no state provision of parking places. What would the equilibrium look like? Some possibilities:
1. You get Berlin, where the public transit is highly efficient and lots of people ride bicycles, even in the rain.
2. Individual housing developments and businesses undersupply parking. The thinking is that if parking runs out in front of your business, your customers will use the parking spaces in front of the business next door. This leads to stores putting up warning signs that say, "unless you patronize my store, your car will be towed." Neighborhoods put up signs that say, "unless you have a residential permit, your car will be towed." This imposes all sorts of enforcement costs as well as inefficient use of space. The warning signs often deter people from parking in places where they impose no cost at that particular time.
3. Land use responds, but not toward the Berlin scenario. On the contrary, businesses relocate farther away from cities, to locations where parking is cheap to supply and you don't get into fights with other businesses about towing rules. Housing developments are built without street parking but instead with large driveways--in effect, each household requires its own oversized parking lot to accommodate its peak demand . As a result of these sorts of adaptations, it takes more parking places to accommodate the same number of cars.
4. After a lot of Coasian bargaining, businesses agree to each provide a minimum number of parking places and housing developers agree to provide streets wide enough to allow parking.
The point is, you don't necessarily get (1). And you might get (4).
Posted by Mark Thoma on Sunday, August 15, 2010 at 03:33 PM in Economics, Market Failure, Regulation |
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