Highways as Club Goods

One innovative method of reducing excess congestion on highways is the addition of All Electronic Tolling (AET) lanes. Unlike general-purpose lanes which give cars (or in the case of HOV lanes, only high occupancy cars) free access, AET lanes charge users a toll that varies based on the current number of other users. Each vehicle that passes under the electronic toll-collector reduces the total cost of the highway’s maintenance. However, the rate at which tolls are collected slows as congestion increases and, from the consumers’ perspective, as total benefit decreases. Pegging tolls to real-time congestion, therefore, allows the profit-maximizing toll operator to optimize the number of “members” in its “club” by discouraging prospective members from overcrowding.

The proliferation of AET lanes on major U.S. highways demonstrates the applicability of Buchanan’s theory of clubs to real-world problems. Whereas Samuelson viewed non-rivalry as the defining characteristic of public goods, Buchanan focused on their non-excludability. To the extent that surveillance technology allows operators to identify and report free riders, AET lanes are less than fully public goods and, thus, feasible as private operations. Additionally, Buchanan observed that such “club goods” are only partially non-rival because “as more persons are allowed to share in the enjoyment of the facility, of given size, the benefit evaluation that the individual places on the good will, after some point, decline (Buchanan, 1965).” Roads, though not perfectly rival, are clearly subject to this constraint. While an individual motorist would never use a road if he was liable for its full costs, sharing those costs with an infinite number of other motorists would totally eradicate the road’s value. AET congestion-based pricing resolves this dilemma by communicating the true marginal cost of lane use that an additional user would impose on current users. By removing the mirage of perfect non-rivalry, such pricing forces prospective users to balance these costs with the benefits they expect to derive from consumption. By transmitting these real-time cost fluctuations, AET lanes can reduce their congestion to levels approaching N*.