Bicycle registration fees

Following on from the Oregon bike registration fee post on this blog earlier this week, The Age reports on a similar idea for Melbourne.

... (R)ecent talk suggests the boom in cycling is accompanied by a similar rise in people who think cyclists should have to pay — and be held accountable — for their time on the road.

In February, 3AW radio host Neil Mitchell called for a registration fee or tax at the point of sale to help pay for the State Government's new $115 million bike strategy.

His call echoed that of then Federal Opposition spokesman on sports, Pat Farmer, who last year said cyclists should pay registration to fund infrastructure and safety campaigns.

Ideally, bike riders should "pay their way" in terms of marginal social cost. Of course, marginal cost pricing does not generate sufficient revenue to cover all costs when there are substantial fixed costs in terms of infrastructure. In this regard, a distinction needs to be made between recreational and transportation bicycle use. In terms of recreational bike use, property owners pay council rates that are used to finance local bike tracks, and therefore local recreational riders probably already pay their way. Recreational riders who ride for longer distances (eg along Beach Road in Melbourne's bayside) do not finance infrastructure in the same way, nor do those riders who use their bicycles for transportation.

Economic theory, however, does not dictate that a rider registration fee should be set at a rate that ensures full cost recovery. While economic theory can assist to identify ways in which the required funds can be raised in a manner that minimises social cost, the ultimate choice as to who should bear the costs is an ideological one, reflecting one's vision of a "good society".

As a result, let's restrict the analysis to marginal social cost. If cyclists were charged a fee for road usage proportional to wear and tear their travel causes, it is likely that the fee would be less than it would cost to administer the charge. In terms of externalities, congestion costs which, on shared bicycle-car roads, can be substantial, need to considered against the benefits from improvements in rider health that are not internalised by the riders themselves (ie are accrued by society in general because of the nature of labour market institutions, the health care system etc).

An important point, however, is that given distortions in other markets (for example, tax benefits on company cars encouraging environmentally damaging car use), it may be inappropriate to set a rider fee equal to marginal social cost. Generally, the chances of government failure in the use of price instruments are considerably larger in a "second-best world" than in a "first-best world". This serves as a warning against the implementation of an ill-thought out cyclist registration fee.