In a comment, Robin Hanson asks (or re-asks) why parking should be free, when there are thousands of other goods with low marginal cost that are not free. My basic answer is that there are thousands of other goods with low marginal cost that are free. I think of free parking as a form of bundling, where the supplier of a priced good (a house, or a store) throws in another for free. If you think bundling is exceptional, then you must be shocked every time you buy a car with cup holders, a cell phone with a camera, or a computer that comes with a USB port, a WI-FI antenna, and word processing software.
I think a lot of the issues here concern what is the relevant margin.
1. The margin I am thinking of is this: when I see a space where I wish to park, do I take it or do I leave it for someone else? If the price is too low, then I might take it when someone else would value it more highly. If the price is too high, then I may leave space vacant when it might be used. Very often, no one else needs that space, in which case any price that would deter me from using the space is too high.
Of course, there are certain times when parking is highly congested. At those times, there ought to be a charge for parking. Very often, with goods that carry a low marginal cost, there are these sorts of congestion issues and peak-load pricing or congestion pricing makes sense. And, in fact, there is a lot of peak-load pricing in parking--spaces that are free to park on Sundays, lanes that cannot be used for parking during rush hour, and so on.
2. Another margin is choice of transportation: when you decide to go some place, do you drive or use some other method of transportation? For example, if your employer provides free parking, you might drive to work, even though you would take public transportation if you had to pay to park. Or you could drive to an urban store that has a parking lot, even though you would take public transportation if the store charged for parking.
Maybe this is an important margin in some downtown locations. But out in the suburbs, it seems less relevant. And in the cities with which I am familiar, downtown parking is not free.
3. Yet another relevant margin is land use. How much land should be used for parking and how much should be used for other purposes? To answer that question, it would be nice to have a revenue number for parking places, so that we can compare benefits and costs. When developers instead choose to bundle in free parking, they are implicitly imputing a revenue number, perhaps influenced by regulation. Unfortunately, they are merely guessing, just as a car manufacturer has to guess how much you value those cup holders.
Note that if bundling is really a bad decision, there are often profit opportunities for other firms to unbundle. If one store's free parkiing is not worth the cost of providing it, then perhaps a competitor will offer better prices without free parking.
Along which of these margins is there the proverbial $20 bill lying on the sidewalk for policy makers to pick up? The Shoup argument that Tyler Cowen is advancing seems to be that government forces the bundling of free parking. Take away the government distortion, and you would see a lot less free parking. Maybe, but I keep wondering how much more bundling government encourages beyond what would take place, anyway, and whether that additional bundling is such a bad thing.