Parking is one of the biggest challenges being faced by cities across the world. Most Indian cities suffer from absence of adequate parking facilities. It is commonplace to find people struggling to navigate through a maze of haphazardly parked scooters, cycles and cars. Shopping can be a harrowing experience with people jostling with each other to push through to their shops, pick-pockets and eve-teasers having a field day, and hawkers occupying whatever remaining vacant place. With everyone parking on the road itself, there is a mad scramble to find the more safer and convenient parking place for your vehicle. All these may be increasingly putting people off, from their regular family week-end shopping visits.
Most often people park their vehicles right in front of the shop, hop over to make their purchases and then get back to their vehicle. This suits both the customer and the shop owner, both of whom pass on the costs of their actions to the public using that road. Unauthorised vehicle parking on road margins causes an externality.
Economic Theory teaches us that a negative externality should be controlled by internalizing the costs. To an economist, parking is a classic example of a negative externality, and the vehicle owners will continue to indulge in indiscriminate parking as long as the Marginal Private Cost (MPC) is less than Marginal Social Cost (MSC). It is therefore necessary to increase the MPC by imposing a Pigouvian Tax, equal to the difference between the MSC and MPC. This tax has to be high enough to deter all would be illegal parkers, and should off-set any Marginal Social Benefit (MSB) gained by using the road margin for unauthorised parking.
Unfortunately, despite this acute crisis, unauthorised and illegal parking does not generate the same amount of outrage as it ought to. It is evident that apart from the parking problem arising from the shops and institutions (especially educational and others providing public services) which do not have parking space, the other important source is that increasing ctegory of households who do not have parking space and are parking their vehicles on their roads. We did some analysis of the opportunity costs of such unauthorised parking and the civic tolerance of this phenomenon in Vijayawada City.
A car occupies about 15 sqm or 18 sqyards of space and a scooter about 2.0 sqm or 2.4 sqyards. This translates into a land of market value of Rs 9 lakhs or Rs 1.2 lakhs in commercial areas in the major commercial areas of the City, being enjoyed free of cost by the respective vehicle owners, and virtually owned by the shop owners. The total road length of commercial area of Vijayawada, which is always under the unauthorised occupation of vehicles is atleast 50 km. The total land value of the unauthorised parking strip along this commercial belt is eaasily more than Rs 500 Cr. Similarly, the total land value of the unauthorised parking strip in residential areas is atleast Rs 50 Cr. The total cost of land, under virtual encroachment by way of unauthorised parking, is therefore more than Rs 550 Cr. This calculation overlooks other social costs like the inconvenience caused to shoppers and other residents in the area, the business lost by shops due to customers staying away due to these hassles and so on. To give an idea of the enormity of this social cost, assuming an annual rental value of 10% of market value, the Vijayawada Municipal Corporation (VMC) is foregoing easily more than Rs 55 Cr in potential annual rental revenues. To put this further in perspective, VMC collects only about Rs 35 Cr in Property Tax! Why then are we so tolerant of this theft of valuable public space, and not talking about charging the shop owners whose customers park their vehicles on this public property?
Many different approaches have been adopted to combat this problem. It is believed that the more sustainable option is to improve the public transport facilities and to simulataneously develop adequate number of parking facilities. Other regulatory policies include restricting entry of certain category of vehicles during specific peak timings, congestion pricing (successfully implemented by the maverick Ken Livingston in London), high parking fees (US Cities), policies to discourage private vehicle ownership by heavy taxation (Singapore) etc. Other unconventional options include converting existing two-ways to one-ways whereever possible, as this would have the effect of virtually doubling the carriage way. But all these get you only so far. In cities where the damage has already been done - with unregulated and unplanned growth of commercial and residential constructions, without adequate parking facilites; where there is limited land available for development of new parking facilities; and where roads are narrow and there is limited scope for widening - the options are very limited.
My strong belief is that the solution to this problem is less regulation and not more! By regularising this hitherto illegal activity, we can regulate it better and capture the social costs of this externality imposed on the society. We can create a market in parking space trading. Cities like Vijayawada should impose parking rents on shop owners without the prescribed parking facilites. This parking rent should be prohibitive enough to deter the shop owners from effectively usurping the valuable public space on the road, by keeping them just interested in searching for alternative solutions to their parking problem. It should be slightly higher than the cost of providing private parking facilities in their own complex or elsewhere, so that there is no incentive to formalise this road margin arrangement as the parking facility. The shop-owners will surely pass on at least a portion of the parking rent to its customers, thereby encouraging more judicious use of private transport and so indirectly encouraging public transport. This rent will also be a certain deterrent against any future construction without adequate parking facilities. The Parking Rent can be fixed in proportion to the extent of public space in front of the shop being effectively used by vehicles coming to the shop, and can be collected every half year along with the Property Tax.
This Parking Rent can be escrowed and the money so collected used for developing newer parking facilites and fund better and more efficient public transport facilities. This Parking Rent would be similar to the Pigouvian Taxes imposed on polluters. (By polluting, a polluter enjoys benefits at the cost of the public. By imposing this tax, we can reduce the emissions and also use it for counteracting the negative effects of the pollution)
My contention is that a Parking Rent would be a more efficient and a market determined solution to the parking problem. It would incentivize shop owners to search for adequate parking pace, deter use of private vehicles and thereby encourage public transport, and help in more optimum use of valuable road space. It would also generate a market for parking space, and draw into market the huge amount of private parking space, especially near commercial areas, that is presently under-utilized when the private vehicles are away. It would also drive customers away from shops without adequate parking facilities to those shops with parking facilities, thereby encouraging shops to provide these facilties. Besides, the market for parking space would discipline and bring regulation to the parking areas itself.
By levying a Parking Rent and thereby collecting the Pigouvian tax, we have a much more economically efficient model of controlling unauthorised parking. If instead, the VMC were to directly collect the parking fees from the vehicle owners through a contractor, it would be a deterrent on the vehicle owners only and does not affect the shop owners any way. The shop owner will not have any incentive to look for alternate parking facilities, and will be happy with continuing the status quo. His sins are being borne by his customers and by the general road users! By imposing Parking Rent on the shop owner, we are directly penalising the agent creating the external cost and thereby internalizing the cost and incentivising him to search for alternate parking facilities.
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