In a free market, the price of a good adjusts based on supply and demand so that the price covers the full cost of producing it. This helps producers sustainably produce the good. It also ensures that consumers of the good consider its full costs before deciding whether to purchase it, meaning that the good is used “efficiently.” Consumers will only purchase a good if the benefits derived from doing so exceed the price of purchasing it.
Efficiency is less likely when producers of a good are unable to directly charge a price to consumers for it. Public goods, such as roads, are “nonexcludable,” which means that producers are unable to prevent consumers who do not pay for them from using them anyway.[*] In this case, consumers do not fully consider the cost of using the public good and thus use it even if the actual costs associated with doing so would exceed the benefits they get from it. Producers are unable to raise the revenue needed to sustain production of the good, so the good becomes overused and degraded.
The solution to this problem is to charge users a fee they cannot avoid if they wish to use a nonexcludable public good, and make sure that this fee covers the costs of supplying the good. An example is a toll on a limited-access highway. Suppose driving on a particular stretch of road results in $5 in damage to it. Setting a toll of $5 would require consumers to bear the full cost of the trip and ensure that the only trips taken on the road were ones for which the benefit exceeds the cost. The toll would allow the road to be maintained, keeping it in a state of good repair.
If such a direct user fee is not practical, a less direct user fee, such as a gasoline tax, could work. If driving on this same stretch of road requires the driver to pay $5 in gasoline taxes, only trips where the benefit exceed the cost would be taken. If the gasoline tax was set at an appropriate level, consumers would bear the full cost of using the roads.[†]
The key point is that a user fee equal to the cost of using the public good results in the efficient use of the public good, much like a price set in a free market results in the efficient use of a private good. If the user fee is set too low, the public good tends to be overused. Conversely, if the fee is too high, a beneficial public good is under-utilized.
The Congressional Budget Office surveyed the academic literature and obtained estimates of the cost that passenger vehicles and commercial trucks create in pavement damage by driving one mile.[66] The CBO cautions that these costs “cannot be calculated precisely, and even the best available estimates are accompanied by significant uncertainty.”[67] Graphic 25 summarizes these costs:[‡]
Graphic 25: Estimated pavement damage cost by different types of vehicles, dollars per mile
Vehicle Type | Rural Roads | Urban Roads |
Passenger | $0.00 | $0.00 |
40,000 pounds, 4-axle | $0.01 | $0.04 |
60,000 pounds, 4-axle | $0.09 | $0.26 |
60,000 pounds, 5-axle | $0.04 | $0.16 |
80,000 pounds, 5-axle | $0.19 | $0.60 |
Despite the stated limitations of these types of estimates, they are nevertheless instructive. It’s clear that heavy, commercial trucks produce the most costs when it comes to pavement damage. In fact, the cost per mile of pavement damage for passenger vehicles is only a fraction of one cent and rounds down to zero. Further, the costs of pavement damage per mile driven is more expensive in urban areas than rural ones. Heavy commercial trucks on urban roads appear to do the most damage to roads.
Another instructive exercise might be to compare how much Michigan drivers currently pay in fuel taxes (a type of user fee) to these estimates. Passenger vehicles pay, on average, 3 cents per mile to drive on Michigan’s roads. Average vehicle mileage for all passenger cars is 23.4 miles per gallon.[68] Passenger cars currently pay 44.7 cents per gallon in federal and state gasoline taxes and an average of one cent per mile in vehicle registration fees.[§] This equates to a cost of 3 cents per mile in gasoline taxes and vehicle registration fees to drive a mile. MDOT estimates that an 80,000-pound truck, or a typical semi-truck, pays about 11 cents per mile in state and federal user fees.[69]
These estimates suggest that commercial trucks are not paying the full cost of the pavement damage they cause on Michigan’s roads. Alternatively, passenger vehicles overpay for the damage they inflict. In terms of pavement damage, commercial trucks are subsidized by passenger cars.[**]
[*] Some roads are excludable, of course. Gated communities, for example, exclude some users from accessing their private roads. This discussion pertains to publically accessible roads that are typically maintained by governments.
[†] This assumes, of course, that all of the revenue from such a gas tax would be used exclusively for road repairs. Some of the revenue from Michigan’s current fuel taxes is devoted to a number of other purposes beside road maintenance, such as supporting public transit and maintaining and improving off-road trails, as described above. Therefore, Michigan’s current fuel tax can only be considered a loose type of user fee for using government-maintained public roads.
[‡] Estimates were originally reported in 2000 dollars and have been adjusted to constant January, 2018 dollars.
[4] The average vehicle registration fee in Michigan is about $120. Americans drive an average of about 14,000 miles per year, which works out to be about 1 cent per mile in vehicle registration fees. Emma Ockerman, “Michigan Vehicle Registration Will Soon Go up by 20%,” Detroit Free Press, Dec. 20, 2016, https://perma.cc/JPH8-FZTB; Federal Highway Administration, “Average Annual Miles per Driver by Age Group” (Federal Highway Administration, Mar. 29, 2018), https://perma.cc/W5D6-KYSK.
[§] There are other costs to using roads than just pavement damager, what economists call externalities. Congestion, air and noise pollution and the cost of automobile accidents are a few of these costs, and these are also estimated by the CBO in their report. This current study focuses on pavement damage, because the improvement of such is the primary purpose of the state’s road funding revenue.