I own a vacation condo close to Santa Barbara, California. The condo is part of a complex of roughly 40 units. Each apartment has a parking space. My wife and I were walking the pretty grounds and as we passed through the parking lot I saw a Tesla electric vehicle recharging as a fancy extension chord was plugged into a wall electric socket. Since I am an economist, it flashed through my mind that the owner of the vehicle was receiving a free lunch! Who was paying for the electricity that his vehicle was fueling up? The electric sockets in the garage were likely first installed for running appliances such as vacuum machines. At first, I hoped that a sophisticated pricing system was billing his unit for the electricity used from that electric socket. At second thought, I realized that a type of "tragedy of the commons" is taking place as all of the 40 unit owners are implicitly subsidizing his operating costs! I'm paying for his "gas". As a free market environmentalist, I am impressed with the owner's cunning and I salute his low carbon choice but I do not respect such implicit theft of my $. How much $ is this guy grabbing?
The Internet tells me that Tesla drivers are achieving 3 miles per kwh. Suppose this guy drives 15,000 miles per year so he needs 5000 kwh. Suppose that the average price of a khw is 10 cents. To fuel his driving requires $500 per year. If he does all of his refueling at our Condo then the 40 apartments are each giving this guy $12.5 a year. In contrast, the Tesla owner is receiving a total subsidy of $488 per year from everyone else at the Condo.
This example highlights an unexpected transfer embedded in how we use and price collective resources (the electricity sockets). Avoiding marginal cost pricing has consequences for efficiency and equity.