Monday, October 09, 2006

Unintended Consequences of Driving Restrictions: New Lessons from Mexico

As we celebrate Ned Phelps' well deserved prize, I wanted to blog about creative research investigating regulation's unintended consequences. Mexico City banned driving specific vehicles one day a week. Has this caused air quality to improve? Lucas Davis argues that it has not. People are not substituting to public transit on days when they cannot use their car. Time is money!

Returning to Columbia's new nobel laureate, I had the honor of being Ned's colleague during the 1990s. I had the opportunity to have lunch several times with Ned and even to go to the opera with him and his wife. I am very happy for him and hope that a few more Columbia economists win this prize in the near future.

The one puzzle for me is the temporal ordering of macro nobel prizes over the last decade. Recall that Lucas won it first, then Prescott and then Phelps. I could imagine a galaxy where the order would have been reversed such that Phelps, Lucas and then Prescott would have won the prize. These swedes get to have a lot of fun.

The Effect of Driving Restrictions on Air Quality in Mexico City

Lucas W. Davis
University of Michigan
August 29, 2006

In 1989 Mexico City introduced a program, Hoy No Circula, that bans all vehicles
from driving one workday per week based on the last digit of the vehicle’s license
plate. The program is inexpensive to enforce and has been since emulated in Bogota,
Santiago and Sao Paolo. This paper measures the effect of the driving restrictions
on air quality using high-frequency measures from monitoring stations. Air quality is
compared before and after the restrictions with air quality in previous years acting as a comparison group to control for seasonal variation. Across pollutants and specifications there is no evidence that the program has improved air quality. The policy has caused
a relative increase in air pollution during weekends and hours of the day when the
restrictions are not in place, but there is no evidence of an absolute improvement in air
quality during any hour of the day or any day of the week. Furthermore, while it was
hoped that the program would cause drivers to substitute to low-emissions forms of
transportation, there is no evidence of increased ridership of the Mexico City subway
or public bus system. Instead, evidence from the market for used taxis suggests that
the program induced substitution to taxis.