Stuck in traffic: Measuring congestion externalities with negative supply shocks

Abstract

Congestion is one of the most challenging issues of urban agglomeration. Congestion costs are higher than socially optimal levels, and more information is needed about the key parameters required to design optimal policies. This paper exploits an exogenous reduction in for-hire vehicle supply in New York City to estimate their effect on travel speed and document substitution patterns to other transportation modes. A 9.1 percent decrease in taxis is associated with increased travel speed by 0.45 min per mile, a 7.2 percent increase. Consumer surplus gains from increased speed fade as waiting times increase and people switch to other transportation modes.