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In city centres, land is more expensive than in suburban or rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road (such as driving). Indeed, if two people are driving into a city (in one car) to run an errand, it will usually be cheaper for one person to drive around in circles while the other runs the errand, than it is to park the car and run the errand together, even in cities with a congestion charge.

What is the origin of this discrepancy in pricing? Is it merely because we haven't implemented road pricing for technical and political reasons, or are there economic reasons that there is no pricing on roads?

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  • $\begingroup$ I think that you'll find that in areas that have implemented road tolling, the tolls are higher in urban/more dense areas. $\endgroup$ – John Biddle Jan 14 '16 at 23:55
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Land values tend to increase with population density, because it is typically possible to put the land to more productive use. A store operating in a dense urban core will have more potential customers, more access to public infrastructure (e.g. electricity, communications networks, those roads you mention, public transportation that makes it easier for more customers to visit the store, etc.) and any number of other external factors that contribute to such land being more desirable. Since more high-wage jobs also tend to be available in such places, there is more access to desirable public and private places (e.g. museums, theaters, upscale businesses) people are also generally willing to pay more to live in such places.

Roads, on the other hand, are generally built and paid for by the government. The government almost never collects the full use value for the things they make, and so roads are drastically underpriced, in terms of the charge consumers must pay (if there is any such use fee at all.)

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It is largely a political rather than economic matter.

Like carbon taxes, congestion pricing is supported by most economists, but not by most of the public. To the public, congestion pricing is an explicit, highly visible cost they have to bear, while the corresponding benefits are nebulous.

Where there is sufficient political will, congestion pricing has been introduced. For example, Singapore's technocratic and authoritarian government has successfully run congestion pricing since the 1970s. Some European cities (notably London) have also now run congestion pricing for quite some years.

Even in the US, there is now more traction for the idea. New York City's congestion pricing was just passed (in 2019) and will come into effect in 2021.

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