Saturday, May 27, 2006

The Case for Higher Tolls

In today's NY Times, Mitch Daniels, the governor of Indiana, reports on the economics of toll collection:
As a private citizen, I had always been intrigued to stop at a concrete booth and fish out a dime and a nickel to pay the 15-cent toll at Gary. As governor, I asked, "What does it cost us to collect a toll?" This being government, no one knew, but after a few days of calculation, the answer came: "About 34 cents, we think."
Tolls are a good mechanism to deal with congestion externalities and to raise funds to finance public goods. But they don't make sense if they are too small.