Response to Kling

Arnold Kling:

Robin Hanson asks why parking should be free, when there are thousands of other goods with low marginal cost that are not free. My basic answer is that there are thousands of other goods with low marginal cost that are free. I think of free parking as a form of bundling, where the supplier of a priced good (a house, or a store) throws in another for free. If you think bundling is exceptional, then you must be shocked every time you buy a car with cup holders, a cell phone with a camera, or a computer that comes with a USB port, a WI-FI antenna, and word processing software. …

Yet another relevant margin is land use. How much land should be used for parking and how much should be used for other purposes? … Along which of these margins is there the proverbial $20 bill lying on the sidewalk for policy makers to pick up? The Shoup argument that Tyler Cowen is advancing seems to be that government forces the bundling of free parking. Take away the government distortion, and you would see a lot less free parking. Maybe, but I keep wondering how much more bundling government encourages beyond what would take place, anyway, and whether that additional bundling is such a bad thing.

Take two random products or services A and B; what are the chances that those two are sold in a bundle that includes both A and B? Pretty dang low. So in this sense bundling is the exception, not the rule. Yes in the absence of government rules many firms would in fact bundle parking with their product. But what is at issue are government rules requiring a large number of parking spaces be bundled with many products. Shoup goes to a lot of trouble to try to quantify the large distortions, especially along the land use margin, caused by forcing too much parking to be bundled with many products. It is just not very responsive to say “you never know, maybe firms would have wanted to bundle that much parking with their products.” Surely regulations should be supported by stronger arguments than this.

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  • A dude

    Seems that far values (Markets pricing in everything, assuming humans are rational asset allocation computers with unlimited CPU and memory resources. Also cars are inherently bad because of pollution and congestion.) suggest that parking should be rationed via some market pricing mechanism.

    Near practicality though says that the free rider problem is real, and the new retailer should ensure adequate parking, or compensate whoever’s parking spaces will be used by her customers.

    I go with the near here.

    * This may be off-topic, but there are costs to optimizing everything in rational human minds. If I am forced to evaluate how much parking is worth to me on my next shopping trip, it raises the mental costs of engaging in whatever economic activity I am contemplating. So I just give up.

    If there is a simple, universal, and transparent charge for the externalities imposed by cars (congesion, pollution, etc) charged without requiring daily mental exercises, I’m all for it.

  • Dagon

    Please be clear whether you’re arguing about free parking, or about government requirements regarding free parking. Mixing up the two leads to confusion and false disagreement.

  • http://codeandculture.wordpress.com Gabriel Rossman

    It might well be discussed in the Shoup book, but it seems like one advantage of mandatory parking is that it prevents or mitigates negative externalities. That is, businesses that provide inadequate parking (such as most gyms) implicitly encourage their customers to use the parking offered by their neighbors and so businesses near the inadequate providers bear costs, either from having their spaces poached or by having to hire security guards, etc, to enforce that the parking spot remains bundled with the business that provided it. By requiring all businesses to provide parking, the state helps avoid this problem. (I’m convinced that there is an externality issue raised by inadequate parking, but I readily admit that it is likely that this problem is on net dwarfed by the issues raised by Shoup).

  • A dude

    In case that question was for me: I did not trace this discussion to its origins, but Robin in the last paragraph above posits that the government rules that require parking provided by businesses don’t have adequate logic behind them.

    (free parking in itself is an amorphous concept, can’t argue pro or against without context.)

    There is information asymmetry – if customers are required to pay for parking before they decided that they need whatever products the business is selling, discovery is being taxed, leading to less efficient markets. This suggests that businesses should want to pay, and they would, as long as the free rider problem is addressed

  • http://www.funkyj.com Funky J

    Am I missing something here? Nothing is free.

    A car is designed with cup holders and cellphones with cameras, and this cost is hidden yet passed onto the user.

    Even USB ports and wi-fi antennas – if you build your own computer without this, it will be cheaper than any off-the-shelf model with them. These “bundled extras” are always included in the cost.

    Furthermore, with regard to software bundling, to presume that has the same cost as buying off-the-shelf is wrong. Bundled software often comes without packaging, reducing the price. It often comes on one install disk and a range of keys, and the supplier uses one CD to install on a range of computers, and the customer has to download included “extras” in the software at their expense.

    A Walmart is designed with a car park in mind – Government policy or not. The cost of this car park is passed onto the consumer through the prices at the Walmart checkout. The cost of “free street parking” is passed onto the consumer through council rates and road taxes.

  • http://infiniteinjury.org Peter Gerdes

    Seems to me the obvious answer is transaction costs. Before the last 5 years it wasn’t technologically possible to pay for parking automatically, e.g., not have to fiddle with a meter at the grocery store to buy a bottle of milk.

    Even with the relevant technology the mere existance of priced parking requires that we pay careful attention to the prices to avoid being gouged. That mental effort probably outweighs the benefits of selling parking spots and in particular imposes a cost on customers at any store that doesn’t offer free parking (thinking about the cost). Moreover, priced parking would likely result in increased time driving since you’ll want compare the prices at other parking slots before choosing.

    Even in places where parking is scarce consider pulling in to park somewhere for 30 minutes to pick up your girlfriend knowing you might end deciding against going to the movie and staying all night. Now you see a close parking spot at say $5/hour and one a mile away at $3 an hour. For most people it’s a fair bit of work to determine that it’s a difference of $1 over the 30 minutes and significantly harder to work out that it’s $24 difference if you stay a whole 12 hours. Now you have to multiply each outcome by their respective probabilities factoring in the chance you’ll move the car during the night and compare that to the cost of the extra walk.

    When money isn’t at issue and it’s just about the walk we usually just employ a really simple heuristic (look for close parking until frustrated) and it’s inefficency costs less than the effort of better decision making. This is fine since walking more won’t cause a disaster but spending $24 instead of $12 every day for a month on parking could break your budget so you MUST do a more careful analysis.

    Also the benefits of priced parking in most places are actually quite small because people are bad enough at math to make the demand curve very hard to determine empirically, e.g., raising the price from $.75c an hour to $.96c an hour might have a small effect but raising it again to $1 an hour might have a large effect. Thus it doesn’t work well to allocate the scarce resource since the parking lot operators can’t set prices efficiently.

    We’ll get priced parking