All-Way Stops

Abstract

Using economic incentives analysis, we demonstrate significant implications from tweaking the familiar practice in the United States and many other countries of erecting one stop sign in each direction to ensure orderly passing at crossroads. We point out that the existing mechanism does not permit a Nash equilibrium for all drivers to abide by, and prove that erecting one fewer sign (e.g. only three stop signs at a four-way crossroad) does. Not only is the simpler mechanism self-enforcing, but its resulting equilibrium outcome also enjoys significant economic gains. For example, for fuel gas savings alone, the new mechanism is estimated to reduce 0.5 months of gas consumption every year, let alone savings in drivers' time, infrastructure costs, carbon/pollutants emissions, and police expenditure.

Keywords: carbon emission, infrastructure spending, game theory, mechanism design, Nash equilibrium, police funding, traffic

JEL Classification: A12, C72, D49, H79, K39, L99, Q35, Q49, Q53, Q54, R41