Economics of traffic control

My driver, while driving across the junction, remarked, “Today, there’s no policeman, so, there’s no traffic as well”. I looked through the shutters and found that the traffic was moving smoothly in all the four directions at the junction. On other occasions, when traffic was directed by a policeman, there was a long line of vehicles trying to cross the junction from all the four side roads. I thought that this was a good case to discuss with my students at the class that day.

I placed the case before the students and invited their comments. “Controlling traffic by the police is an intervention by the government. Since all government interventions are inefficient, that intervention is also inefficient,” one of the students reasoned out.

“It’s wrong to say that all government interventions are inefficient,” I said. “Only the interventions that don’t follow the market are inefficient. When the government adopts market friendly policies or emulates the market, then, government’s work is as good as the market’s outcome.” “How can that be?” Another student asked. “You’d better explain it,”

“All right,” I began my explanation. “Why do we have traffic congestion? That’s because all the motorists try to pass the road at the same time. Since the availability of the road is limited in a physical sense, everyone cannot have a place on the road. Economists call this the use of road rights or property rights over the road at that particular time. For example, in the centre of a junction, vehicles can pass smoothly if they pass one at a time. If they don’t, they all get stuck in the centre and no one can move either forward or backward. This is known as the gridlock problem in economics.”

“We now understand,” a girl remarked. “Government thinks that it’s better equipped to solve the gridlock problem. So, it posts the policeman there to direct traffic.”

“Precisely,” I continued. “The policeman tries to solve the problem by allocating road rights to motorists, so that they could pass the centre, one at a time. But, whether he would solve the gridlock problem efficiently or not will depend on the basis on which he would allocate road rights.”

Students found the discussion interesting and were looking at me with open mouths. “In a market, a gridlock is automatically undone by allocating road rights according to the demand. Motorists who come from the side road with the largest number of vehicles demanding to pass the centre get priority and when they pass speedily and their demand is taken care of, others get the opportunity to go. Then, the traffic on the side roads too gets eased automatically. The market allows the vehicles to pass speedily and clears the excess demand for road rights.” “You mean to say that if the policeman gives priority according to the size of the demand, then, it’s as efficient as a solution by the market?” a student from the back queried. “You’re correct,” I said.

“Why doesn’t the policeman follow that rule then?” the same student from the back questioned.

“Due to a number of reasons,” I continued. “First, he may not have the full information on the traffic build-up on different roads. But, this is not a problem after sometime, because the policeman can learn from previous experience. But, the most probable reason is that he may act in the belief that it’s his duty to take care of those coming from side roads believing them to be underprivileged. A kind of a socialistic type of belief! Then, he gives priority for those motorists and, as a result, traffic on the main road starts to build-up. Once, that build-up is long, the speed of the vehicles also falls requiring them to take a longer time to pass the junction. So, you’ve a classic man-made traffic congestion on the road!”

“It’s pathetic. The policeman who comes to help us becomes the cause of a bigger problem too,” a girl from the front remarked.
“But the policeman doesn’t know that. He firmly believes that he does a service to us by controlling traffic. He can take pride in his work, only if he could make the traffic pass faster than the normal times when there’s no intervention.”

“So, your solution is to keep the policeman completely out?” the student at the back questioned again.

“No. There should be intervention. But, that intervention should be a market-friendly one. In other words, it should facilitate the market to do its job properly. That you can do only by following market principles. That should be followed even when you have colour lights. Priority should be given to the road with the heavier traffic flow.”

“But, isn’t it the case that even the market cannot undo the gridlock if the vehicular traffic flow is very heavy?” another girl questioned.

“In that case, the solution is to increase the capacity of the road to accommodate a bigger number of vehicles. One other option is to build a flyover at the junction so that vehicles coming from all the four roads can pass it at the same time. Then, you don’t need a policeman at all.” “But what about the school kids crossing the road? Don’t you need a traffic warden there?” the same girl continued her inquiry.

“There, you should give road rights to students by erecting an overhead bridge or digging an underground pass. It wouldn’t deny the road rights to motorists, unlike the present case where vehicular traffic is completely stopped to permit students to cross the road.”

“But, who would fund all these constructions? Tax payers?” another student wanted to know.

“Easy,” I said. “The motorists themselves could fund them, because it reduces their time costs.”

“The bottom line is that interventions by governments going against market principles do a greater damage to the economy,” the same student commented.