User Pays, Doofus Pays – A Better Economic Approach to Highway Funding

Finding a path forward to address the nation’s infrastructure shortcomings drove the U.S. Chamber’s Third Annual Infrastructure Summit earlier this year. The bottom line persists – the nation underinvests in infrastructure, a solution is badly needed, yet the hang-up remains, as always, the funding.

The nation needs to repair and maintain its existing roads, ports, water systems, and all the rest, and to build for the future. Infrastructure is about safety, quality of life, and competing in a global economy. But getting Washington policymakers to agree on how to fund the needed infrastructure remains a headache. It seems everybody wants a free lunch.

To advance the debate, the U.S. Chamber has offered a prize of $25,000 to whomever can suggest a funding mechanism to break the policy logjam. The many ideas advanced to date generally fall into one of three buckets.

The first bucket contains the traditional proposals like a gas tax hike, and modern variations thereon like a vehicle mileage tax. The second contains notions mixing equal portions of creativity and fantasy. The third bucket includes proposals that are both new and feasible. To date, the third bucket remains empty.

As a Chamber employee, the author is precluded from claiming the prize, but not from offering a suggestion for consideration which may claim a place in the third bucket. This suggestion rests on a new application of an old economic principle.

A traditional economic argument applied to highway funding, for example, is the system’s users should pay for the system. Hence the federal and state gas excises are intended to fund highway spending.

The additional principle applied in a new way is most notably associated with the economist Arthur Pigou. Applying Pigou’s principle could raise significant sums for highway construction, but would also render the roads safer, significantly reducing traffic deaths and injuries, materially reduce emissions and congestion, and likely reduce automobile insurance premiums by billions of dollars a year nationwide.

What is this Pigouvian magical infrastructure elixir? It is that he who creates a negative externality should compensate those afflicted. The application in this case is to impose commensurate fines on those causing traffic accidents.

Consider Washington D.C., traffic on the early morning after the Infrastructure Summit. Washington has three bridges leading into the city core from Virginia. One, the Memorial Bridge, is under repair and thus its capacity is limited, leaving the 14^th Street Bridge to carry most of the north-bound traffic from I 395 onto the Southeast/Southwest Freeway.

During the rush hour in question, some doofus caused a major accident on the freeway, the effects of which quickly migrated back over the 14^th Street bridge and for miles southward on I 395. Tens of thousands of drivers were affected, forced to crawl up the highway, spewing fumes and fuming themselves, a not uncommon occurrence.

Suppose 10,000 drivers were affected, a very conservative estimate in this case, at a cost on average of 30 minutes per driver. That’s 5,000 hours wasted due to this one accident. At only $5 an hour the driver(s) at fault cost fellow citizens $250,000. According to Alfred Pigou, the driver who caused the accident should face not a fine of $250, but of $250,000.

On any given day, the Washington, D.C., metro area faces perhaps 20 such accidents, plus many more on local roads. Following Pigou, the offending motorists would cumulatively cough up well over $1.5 billion a year. Add in lesser fines for accidents on all the side roads and the total could easily hit $2 billion, an amount perhaps inadequate to solve all the road issues in Washington, but one that would make a huge difference.

Now apply such a system across the country, perhaps making distinctions between accidents caused in metropolitan versus rural areas, and between those on interstate highways, state roads, and local roads. Mr. Pigou is open to refinement. Applied nationally, a “Doofus Pays” fine system would significantly close the gap between infrastructure needs and means.

To be sure, applying such a system nationally would not raise all the monies a static estimate suggests for the simple reason that behaviors would change, just as tax policies cause behavioral changes. For example, we wouldn’t need unenforceable laws against distracted driving because the new, vastly higher price for distracted driving would itself be the enforcement.

But the number of traffic accidents would plummet as would associated injuries. With far fewer accidents, car insurance premiums would follow suit. One of the many causes of nightmare traffic jams would significantly abate, along with emissions. All just because the drivers who cause accidents, a.k.a, the Doofuses (Doofi?), would finally pay the full price they impose on the rest of us for their carelessness. What’s not to like?

About the authors

J.D. Foster

Dr. J.D. Foster is the former senior vice president, Economic Policy Division, and former chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.