Arnold Kling  

Parking: What is the Relevant Margin?

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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.


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COMMENTS (11 to date)
Hyena writes:

I think the Shoup problem is larger in areas where there are lower land values. Often the government mandates ample free parking but my impression is that these laws disappear as land values rise. Businesses are a powerful lobby and, often, the laws in question are merely regulations set by planning boards.

So I imagine that there isn't a "high cost of free parking" but rather a moderate cost accrued largely through poor land use.

Foobarista writes:

On a main shopping street in my area, all parking is free, including a couple of large parking towers. The merchants in that area pay a special parking assessment to support the parking towers and other city-run parking infrastructure in the area.

This means that parking appears to be "free" - so customers don't avoid going there - but items are slightly more expensive than they'd be without the assessment.

It appears to be an approach that "works"; a couple of nearby downtowns with parking meters aren't nearly as popular.

Pavel writes:

If my employer provides free parking and I don't drive, then I am in a way paying for someone else's parking since my salary is lower than it would be without the parking. Same goes for shops etc. So free parking is bad.

Doc Merlin writes:

@Pavel:
That is only true if public transport is heavily subsidized, in which case the drivers are paying for your transportation anyway.

blink writes:

You have not really engaged Tyler (or Robin) yet. You've summarized it correctly in the final paragraph, but the closest you come to refuting it is to say the restrictions probably don't matter very much! Given the prima facie economics that forcing individuals to act other than how they would chose leads to mis-allocation of resources, it is on you to offer real evidence of external costs or benefits not considered, but you have not done this.

Two Things writes:

In a way, laws forcing businesses to maintain a certain number of parking spaces are like laws forcing businesses to maintain restrooms. In both cases the externalities and transaction costs which accrue when provision is not mandated arguably exceed the costs of provision, even when those are fully considered.

We force restaurants and other businesses to provide restrooms because the alternative-- public spaces littered with human waste-- costs more than the mandate. Unmandated (i.e., profitable) pay toilets aren't a viable solution because neither users nor landlords are willing to directly pay costs they can externalize. Even when convenience and the risk of public shame are considered, the lowest possible (cost-recovering) price for a pay toilet is higher than the maximum market price so investors will not provide toilets. Enough policing to force users to pay directly for toilets would cost more than the mandate which forces them to pay indirectly.

Cities imposed parking-provision mandates after they learned from experience that people really want to park their cars and will cheerfully violate traffic laws, trespass, and create all sorts of nuisances to do so. That is, people try to externalize their parking costs above a certain level. Heavy policing can deter some of that but it's very costly and provokes considerable backlash. If parking provision is not mandated then landlords all try to externalize parking, which seems to be a stable but clearly sub-optimal equilibrium.

Forced provision of parking spaces promotes bundling of parking with other services and makes it hard for drivers or landlords to externalize parking costs. Very few cities force landlords to provide "free" parking, but mandates do subsidize parking since the market price for parking commonly won't fully repay landlords' costs of provision (if it did the mandate would be unnecessary). Landlords then necessarily bundle parking with whatever else they're selling, which forces patrons to internalize those costs (on the average) in the final reckoning.

It's not enough to say, as Shoup does, that landlords ought to charge for parking. The transaction costs can swamp the benefits.

First, each driver has to deal with the payment system. It's tempting to analyze that cost as an increase in parking fees but the payment system makes drivers anxious and consumes their time as well as their money. Even rich people only get so many hours in a day, so charging people time imposes a kind of wealth or income tax. Worse, when asked to pay for parking drivers must evaluate competing offers, many of which contain deliberate screw-the-yokel traps.

(For example, parking-lot sign says $3/hour in big letters, but in small type says cars parked more than two hours must pay the full-day rate of $19; or pay-in-advance meters charge $3/hour but if you're five minutes late they hit you with a $90 fine, so you end up buying excess time as insurance).

Finding and parsing complex offers costs time and well-founded fear of being cheated increases anxiety. People hate that. Only free (bundled) parking cuts anxiety to nil, which is why people often cruise around areas well-provided with pay parking looking for "free" spots, however much congestion and smog their search causes.

Pay-parking providers incur transaction costs too, some of which they lay off on taxpayers. A parking lot operator must pay an attendant, or else pay inspectors to enforce meters (which loads down taxpayers with police and court costs since we won't allow inspectors to use violence). Meters themselves are costly to install and service.

I don't think Shoup pays enough attention to either the history of parking mandates or the evils they try (however imperfectly) to alleviate. Historically we have seen that even though landlords can (and often do) charge for parking, the free market will not provide enough parking spaces to keep the externalities down to a tolerable level.

hhoran writes:

Blink is correct. This is Arnold's third post following Tyler's NYT column, and he still refuses to engage the central arguments.

Simple example: Shoup/Tyler aren't saying that the government has directly established regulations mandating parking "bundling". The argument is that zoning rules mandating extremely high parking requirement on any investor who wants to run a worksite, store or housing complex artificially eliminates the scarcity needed for a real "parking market" to develop. Other investors can't offer worksites/stores/housing with lower direct prices but less parking, given the ubiquity of abundant "free" parking options elsewhere. Just as government rules mandating large scale employee/apartment building cafeterias would wreck the restaurant market.

Obviously in a "free-market" parking market you'd see bundling in most low-density suburban/rural situations. The command-and-control parking regulations that Arnold is defending are designed to preclude alternatives that may be more efficient in higher-density situations.

Two Things claim that parking requirements are a necessary response to nuisance/trespass problems is complete nonsense. As with most zoning rules, they respond narrowly to existing landowners who want to undermine other/future landowners property rights to protect existing privileges. I have ample free parking in front of my house--please block anyone else from building new houses so I won't have to hunt for a parking space. Two Things claim that

the free market will not provide enough parking spaces
shows that he/she (like Arnold) just doesn't believe that markets work in these situations, and command-and-control is the way to go.

Two Things writes:

hhoran:

I say reality trumps theory. Your theory does not explain the reality, which is that the cars-- and the social costs of inadequate parking-- came before the mandates.

If you go read some history you will learn that parking is underprovided by the free market. Why? Because the "scarcity" you advocate to drive up the price of parking to remunerative levels is artificial-- it can only be maintained by harsh and costly policing. As a strict matter of fact there are always plenty of potential parking spaces along curbs or in driveways or on property guarded only by soon- to- be- vandalized signs. They're all off-limits, legally (and often for good long-run reasons), but enforcing those limits is very costly.

People will pay for parking bundled with other goods and services. They will even pay modest parking fees, hence the success of parking mandates (a form of subsidy). But when asked to pay high "unbundled" parking charges people try to evade them by parking in places where they annoy other people. Drivers are (rationally! Ask Gary Becker!) willing to trade the chance of a ticket against the certainty of a fee.

Removing parking mandates would not produce the nice, clean, orderly scarcity you want. Only a large increase in enforcement costs could create scarcity without disorder. The police, at taxpayers' expense, would have to become the guarantors of parking-lot-operators' incomes. (Why you expect taxpayer/voters to endorse that is beyond me.)

Shoup just airily assumes that removing parking mandates would give us cities in which rich drivers pay high prices for parking and everyone else has to take the bus. He never considers that people who can't find parking spaces they feel they can afford will just park in loading zones. (The problem is non-linear. When illegal parking is rare it's easy to detect and punish. When "everybody does it" enforcement fails and deterrence fails with it.)

To properly evaluate Shoup's scheme you have to compare the price of mandates (bundled into goods and services) with alternative-- the costs of enforcement and the costs of illegal parking enforcement is unable to deter.

Paul Barter writes:

Two Things wrote:

In a way, laws forcing businesses to maintain a certain number of parking spaces are like laws forcing businesses to maintain restrooms. In both cases the externalities and transaction costs which accrue when provision is not mandated arguably exceed the costs of provision, even when those are fully considered.

I painted an analogy between zoning for parking and required restrooms a few months ago. I argued that municipalities do treat them in almost the same way but that there are important differences between the two, which mean that treating parking like restrooms is not such a great idea.

On the question of externalities from under-provided parking (planners call it 'spillover' parking): that is why Shoup advocates market-priced on-street parking. His proposals to deregulate off-street supply and price public-sector parking efficiently are closely linked.

Enforcement will never be perfect but it need not be draconian to be a) good enough and b) cover its own costs and more. The examples of parking enforcement in the UK, in Japan since 2006, and Singapore in recent years show successful parking enforcement even in contexts where much parking is priced.

John R. Graham writes:

I have lived in two cities where they tried to banish cars from the downtown streets and make everyone walk from shop to shop (Vancouver & Ottawa). Both have failed: panhandlers loiter and respectable people don't come because they prefer to drive and park rather than take mass transit and walk down a "mall" with panhandlers loitering around.

Nowadays, central planners who propose these ideas are shut down immediately by the retailers, who are willing to pay assessments or taxes to subsidise parking. Think about it: Even when parking is market-priced, retailers often "validate" the parking so you get it free or for a much cheaper rate than the posted rate.

So, previous comments are obviously correct: "shopping + parking" is an economically efficient bundle.

Plus, the bigger problem is that mass transit in Canadian and US cities is usually a local-government monopoly: "jitneys" and other choices of privately supplied mass transit are outlawed....but that is a whole other ball of wax.

Arvind Narayanan writes:

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