Subject: Air Pollution/Transportation: Mexico City
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Date: Mon, 9 Feb 2004 21:57:02 +0200

Topic Area: Air Pollution/Transportation
Geographic Area: Mexico City
Focal Question: Does limiting the time an automobile can be used effectively reduce car use?
Sources:
(1) Eskeland, Gunnar S., and Feyzioglu, Tarhan. "Rationing Can Backfire: "The 'Day Without a Car' in Mexico" The World Bank Policy Research Working Paper 1554. December 1995.
(2) Eskeland, Gunnar S. "Attacking Air Pollution in Mexico City." Finance and Development. 29(4), Dec. 92. pp. 28-30.
Reviewer: Kristen M. Zolla, Colby College '96
Review:

In recent years, Mexico City has found itself faced with extremely high levels of air pollution. In fact, pollution levels in this area constitute a health problem (Eskeland, 92 28). With the transport sector contributing to about half of the city's total emissions, it was clear that in an effort to combat the negative factors of air pollution and congestion some measures had to be taken to somehow reduce the pollution produced by automobiles.

In 1989, in an effort to alleviate congestion and pollution problems, a new program was launched. This program consisted of a regulation mandating that each car in Mexico City could not be driven on one specific day (determined by license plates) during the week. This regulation has experienced some popularity, as many people believe that this is a reasonable sacrifice for individuals to make for the public good. Compliance is believed to be high in light of the high fines and highly visible police enforcement. Despite its popularity, this regulation has been shown to be both inefficient and ineffective in curbing automobile use. Some indicators even point to increases in automobile usage as a result of this policy (Eskeland, 95 1).

One problem created by a regulation such as this is trips are regulated in a manner where it is not necessarily the least important trips which are forgone. This occurrence is an inefficient outcome. First of all, the particular trips prohibited are not those which can be most easily forgone, as the car owners do not decide which trips to forgo as the abolished trips are chosen by mandate and not by those who can measure their importance, the car users. This program prohibits, for example, driving on a Monday. An individual may prefer to cut back on other trips throughout the week instead of all of his Monday trips. Therefore, since all of his marginal trips are not likely to happen to fall on Monday a reduction caused by such a regulation would not be efficient (Eskeland, 95).

Additional flaws in such a policy prohibit market forces from eliminating the inefficiency. For one, trips are neither transferable between days (as indicated above) nor are they transferable between parties. Someone could conceivably lend out their car for a price, but that does not necessarily imply a substitution of trips as the lender might not have been using his car in the first place. Additionally, since trips are not transferable, on a given day the allocated trips are not going to their optimum uses. Two different car owners could want to make trips of a similar length, but it is likely that it will be the owners of the not-banned cars that will make the trips, not those who value them the highest.

Furthermore, even if efficiency is not a requirement of this policy, this regulation has not been shown in being effective. Eskeland and Feyzioglu (1995, 6) modeled gasoline consumption as a function of both gasoline prices and income. If this regulation was to have an effect on automobile usage, then the demand function would be expected to shift in some way, either by changing the level of consumption without changing the price and income elasticities, changing the elasticities without changing the level, or by affecting both. Using data from January 1987 through December 1992 they determined "there is a substantial change in the gasoline demand function associated with the regulation" (Eskeland 1995 7). Both the price and income elasticities shifted upwards after the regulation's implementation. When data from the post-regulation was inserted into the pre-regulation demand equation it was found that actual demand increased after the policy in all but the first two quarters. These findings indicate that the regulation actually had a positive influence on gasoline consumption which is assumed to be a proxy for total automobile usage (Eskeland, 95 7).

The fact that the regulation had the opposite effect of what was intended turns out to be quite explainable.

One problem with attempting to control automobile usage by prohibiting usage during certain time frames is cars are not fully utilized, as they are not being used 24 hours a day seven hours a week. Therefore, restricting trips that were to be taken during a certain day could conceivably be moved to another day. This carries with it the doubly negative effect of inconveniencing the car owner and not reducing automobile usage. Furthermore, changing the time of this trip could actually increase driving if the reason it was preferred to occur on the banned day because of the convenience of being in a closer location (Eskeland, 95 5).

Additionally, since cars are presently not fully utilized, car owners can exchange car services to accommodate the restrictions without lessening either's use of their vehicle significantly. One car could do the job of two for the days when one of the two is restricted. This could also even have the effect of increasing automobile usage if one party were to go further out of his way to accommodate the other. This could occur if the first party drops off and picks up someone who would have normally have taken a direct route.

An additional problem caused by this policy of rationing car use is that although automobile usage is not transferable, there is an upper cost to compliance, namely the price of ownership of a new vehicle. Eskeland and Feyzioglu (1995, 16) propose a model that explains car ownership before and after a regulation which decreases the value of the services a household receives from each car. One might expect if a car is to become less useful to the owner, ownership would clearly fall, but Eskeland and Feyzioglu's model shows that the solution is not that simple. Theory predicts some car owners would choose to sell if the current service value offered by owning a vehicle is only slightly greater than the ownership costs, while others may chose to buy. This could occur because the marginal use of the second car is greater than previously, because it has the added effect of being able to not only supplement but to substitute for the first car on its banned day. The theoretical model predicts a slightly larger number of sellers than buyers, but empirical evidence indicates that Mexico City imported used cars from the rest of the country after the ban.

Other factors could lessen the decrease anticipated by this ordinance. Eskeland and Feyzioglu (1995) ascertain that if congestion on a given day was to decrease, an individual may now choose to travel because of the benefit of less traffic. This increase due to improved travel conditions would be less than the original decrease, but it does tend to offset somewhat the actual reduction.

This Mexico City experience is a perfect example of policy failure. This regulation ignored the principles of efficiency and in doing so overlooked the economic incentives it created. Unfortunately, this policy created no incentives to cut back on driving and as a result the goal of decreased car use has not been attained.

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