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The Road to Ruin: Parasitic Suburbs and the Fundamental Law of Traffic Congestion

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Abstract

We examine the strategic relationship between a city and a satellite suburb. Living costs are lower in the suburb but its residents must commute to the city to utilize an amenity that cannot be made available in the suburb. The road between the city and the suburb is subject to congestion. In the first-best solution, welfare is always increasing in the size of the road but a larger road can nonetheless lead to more congestion even though road use is priced correctly. If the city and the suburb instead act independently and noncooperatively then two types of distortion arise: a free-rider incentive for residents to live in the suburb so as to avoid paying city taxes; and a congestion externality associated with unpriced road use. A larger road can reduce or raise congestion, depending on whether the public good and private consumption are substitutes or complements respectively, but always reduces welfare either way. JEL Classification: R41, H41, H75

Suggested Citation

  • Martin Farnham & Elisabeth Gugl & Peter W. Kennedy & Levi Megenbir, 2024. "The Road to Ruin: Parasitic Suburbs and the Fundamental Law of Traffic Congestion," Department Discussion Papers 2405, Department of Economics, University of Victoria.
    • Handle: RePEc:vic:vicddp:2405
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    More about this item

    Keywords

    congestion; roads; public goods; local government;
    All these keywords.

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare

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