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Open Access Publications from the University of California

Roads, Prices, and Shortages: A Gasoline Parable


Can pricing roads really help reduce congestion? One way to answer this question is to ask if not pricing roads causes congestion. This essay makes that case, and does so by demonstrating the general principle that when goods are underpriced, shortages result, and congestion is essentially a shortage of road space. People react and adjust in many ways to shortages, but accurate pricing is the only reliable way to end a shortage caused by mispricing. I illustrate this concept with oil and gasoline price controls. In the 1970s, the United States inadvertently created a gasoline shortage by mispricing gasoline, and in response to that shortage made a series of increasingly complicated and largely ineffective adjustments. While today most people agree that these gasoline price controls were unwise, an analogous situation persists on our roads, which most people tacitly accept.

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