Welfare Costs of Urban Traffic through Retail Prices

Abstract

This paper investigates the welfare costs of urban traffic by considering its implications on consumer retail prices. Using retail price data for 40 goods and services from 70 cities (covering 47 countries) for multiple years, the estimation results suggest that the elasticity of retail prices with respect to the time spent in urban traffic is about 0.5. This elasticity is further connected to the welfare of consumers by using the implications of an economic model. The corresponding investigation shows that reducing the time spent in urban traffic by one minute improves consumer welfare by about 1.3% for the average city, with a range between 0.8% and 2.3% across cities. Several policy suggestions follow regarding how to reduce the time spent in urban traffic that would improve consumer welfare.

Keywords: Welfare Costs, City Traffic, Micro Prices

JEL Classification: O18, R41