Guide to Calculating Mobility Management Benefits Victoria Transport Policy Institute
Explanation of the “Rule of Half” Economic theory suggests that the net change in consumer value from a price change that reduces vehicle travel equals half the monetary change (called the rule of half). This takes into account the trade- offs consumers make between factors such as money, time, convenience and mobility.
Assume a 10¢-per-vehicle-mile price change (such as parking or road pricing, or pay-as-you-drive insurance) causes you to drive 1,000 fewer annual miles. You would not give up highly valuable vehicle travel, but there are probably some vehicle-miles that you can reduce by shifting modes, choosing closer destinations, or because a trip itself is not very important. The mileage foregone has incremental value to you, the consumer, between 0¢ and 10¢. If you consider the additional mile worth less than 0¢ (i.e., it has no value), you would not have taken it in the first place. If it is worth 1-9¢ per mile, a 10¢ per mile incentive will convince you to give it up – you’d rather save the money. If the additional mile is worth more than 10¢ per mile, a 10¢ per mile incentive is inadequate to convenience you to give it up – you’ll keep driving. Of the 1,000 miles foregone, we can assume the average user value (called consumer surplus) is the mid-point of this range, that is, 5¢ per vehicle mile. Thus, we can calculate that miles foregone by a 10¢ per mile financial incentive have average consumer surplus value of 5¢. If motorists drive 1,000 fewer vehicle miles due to higher fees the net consumer cost of $50, while a $100 financial reward that convinces motorists to drive 1,000 miles less provides a net consumer benefit of $50.
In general, the most effective mobility management programs integrate both positive incentives (such as walking, cycling, rideshare and public transit improvements)) and disincentives (road and parking pricing, traffic calming, etc.). Since individuals have diverse and variable travel needs, more comprehensive and flexible programs tend to be most effective. For example, employer subsidized transit passes will probably reduce automobile travel less than commuter benefits that also reward walking, cycling and ridesharing. Since commuting represents only about 25% of all trips, incentives that also affect other trips are more effective. Programs that rely only on persuasion tend to become less effective over time as participants’ enthusiasm declines, but programs that offer financial incentives tend to become more effective over time as they affect long term decisions, such as housing and employment locations.
The following guidelines can be used for evaluating the consumer costs of specific mobility management policies and programs:
Strategies that are optional to consumers and rely on positive incentives (such as improvements in alternative modes and positive financial incentives such as Parking Cash Out) that directly benefit consumers, or they would not accept them. Any travel reduction therefore represents increased consumer surplus.
To the degree that consumers have a variety of transport options to choose from and are able to decide which travel to shift or forego, they will reduce the least beneficial vehicle travel, resulting in small reductions in consumer surplus.
Road and parking pricing are economic transfers (money shifted). Their overall impacts depend on how revenues are used. For example, road pricing costs may be offset by reductions in taxes or public service improvements financed by the additional revenue.