Thursday, February 11, 2016

Ronald Coase vs Red Lights?

Forum thread: Clarifying The Demand For Green Lights

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In the comment section of this Youtube video... AntiBullshitMan wrote the following...

I often drive at night & catch myself impulsively yearning to run the red light in the interest of time, because the street is vacant and "obviously no harm will be done". My psyche then launches into "Why do they even keep these things on at 3am anyway? Every street is deserted!".

I'm pretty sure that most of us can appreciate the sentiment.  When you're really tired and just want to get home... it sucks to have to sit at a red light for no good reason.

I definitely perceive it as a problem.  Maybe it's not a huge problem... but it's definitely a problem to force people to wait for no good reason.  As you might have guessed from the title... my solution is to clarify the demand for green lights!  

Abraham Maslow said, "If you only have a hammer, you tend to see every problem as a nail."  This definitely applies to me!  I only have a floodlight, so I see every problem as darkness.  For example... I've also argued that we should 1. clarify the demand for defense and 2. clarify the demand for justice.  And now I'd like to argue that we should clarify the demand for green lights.  Admittedly, green lights do seem like small fries in comparison to defense and justice.

Just because it's true that not every problem is a nail... it's also true that some problems are nails.  Your mission, should you choose to accept, is to explain to me why it wouldn't be a good idea to clarify the demand for green lights.  Eventually I'll figure out why it's important to clarify the demand for some things... but it's not important to clarify the demand for other things.

Let's consider the simplest scenario.  It's 3am... you're driving home... and the streets are deserted.  Up ahead you spot a red light.  Of course you'd prefer it if the light was green.  In fact, you'd be willing to pay a penny for the light to turn green.  And that's exactly what you do.  How do you pay a penny for the light to turn green?  That's a good question.  I really don't know.  Figuring out the answer is pointless if none of you agree that we should clarify the demand for green lights.

Same scenario as above... except this time the streets aren't entirely deserted.  Bob is also driving home and you're both approaching the same intersection.  Your light is red and his light is green.  The question is... who wants a green light the most?  I think this is a really good question.  In order to answer it... you could bid for a green light.  Bob's light would turn yellow... and he could try and outbid you.  Whoever bids the highest amount... would get the green light.  The loser would get a red light.

Let's say that your max bid was $1 dollar and Bob's max bid was $2 dollars.  Are these realistic amounts?  You tell me!  Clearly, given that you didn't win the auction... you wouldn't have to pay the one dollar.  Since Bob won the auction he would have to pay the $2 dollars.  The question is... who gets the money?  Should the city get the money... or should you get the money?  Or should you split the money with the city?  I think you should get all, or most, of the money.  Bob would essentially be  paying you for the right of way.  He would be paying you so that he could use a limited resource... a green light.  I think the most relevant economist in this situation is Ronald Coase... The Problem of Social Cost.

Now let's imagine rush hour.  There are a lot of people on the road.  If it's morning rush hour... then people are trying not to be late for work or school.  If it's evening rush hour... then people are tired and eager to get back home.  Except... some people are more eager to quickly reach their destination than other people.  We can imagine a bull curve.   The people two or more standard deviations on the left side of the curve really want to get to their destination in the shortest amount of time possible.  The people on the other extreme have all the time in the world.

Of course we all see some evidence of the differences in demand.  Some people drive super slow... others drive super fast... some people honk... some people even intentionally run red lights.  But would less people run red lights if they could pay for green lights?

So there you are at rush hour stuck at a red light.  But this time you aren't alone!  There are other people in the same boat.  And the longer the light stays red... the more people that are in your boat.  Everybody in your boat wants the same thing... they want the light to turn green... but they probably aren't all willing to pay the same amount for the light to turn green.  However, as more and more people are stuck at your red light... the aggregate (total) demand for a green light increases.  As your street's demand for the green light increases... the other street's demand for the green light has decreased.  When your street is close to winning the auction... the other street's light turns yellow.  We can imagine that is the equivalent of saying "Going once, going twice, going three times... ".   If the aggregate demand on the other street doesn't increase enough... then their light will turn red and your light will turn green.

How much did your side pay for the green light?  What was the aggregate demand?  Man, that's a really good question!  Let's say that it was $200 dollars.  This money will be used to compensate the people whose light just turned red.  But how should the money be divided up between them?  I guess it would be determined by the amount of money that the people were willing to pay for the light to turn green.

With the current system... a yellow light indicates that you should slow down because the light is going to turn red.  But with a clarity system (demand is clarified)... a yellow light indicates that you should slow down because, unless you outbid your opponents, the light is going to turn red.  If your side does happen to outbid your opponents... then the yellow light would turn into a green light.

One easy argument against a clarity system is that you don't want drivers to be distracted by trying to figure out how much they are willing to pay for a green light.  I suppose it's not a bad argument... but it disappears of course once cars can drive themselves.  Do traffic lights go away once cars can drive themselves?  I'm imagining an intersection without any light signals and cars are flying through the intersection in every direction.  Collisions are avoided by proximity detectors?

Are drivers distracted by turn signals though?  Turn signals facilitate communication.  And generally it's a good idea to facilitate communication.  Sirens and flashing lights on ambulances, police cars and firetrucks help to facilitate communication.  When we hear the sirens and/or see the flashing lights... we know to slow down and pull over to the side of the road when possible.  If we're stuck at a red light.. and we hear approaching sirens... then we know not to drive through the intersection even if the light turns green.

Imagine some guy driving his wife to the hospital because she's about to have a baby.  I really like the idea of him being able to bid on green lights.  Same thing if you're running late for a really important meeting.

What comes to mind is when you're at a supermarket waiting to pay for a ton of groceries.  The person behind you only has a few items.  What do you do?  If you're a nice person you'll let them go ahead of you.

Of course nobody likes it when somebody cuts in line.  But we wouldn't complain if the cutter paid everybody behind him enough money.

I live right next to Los Angeles and it blows my mind to try and imagine all the people driving to some destination during rush hour.  Los Angeles has nearly 20 million people in it... and it sure seems like all of them are driving during rush hour.  If Los Angeles implemented a clarity system... then maybe during rush hour there would be around a million people communicating with each other by bidding on green lights.  For me it seems like a given that facilitating greater communication between a million drivers would be immensely beneficial.  Imagine all the people who wouldn't miss their important meetings... and all the people who wouldn't miss their flights... as a direct result of their ability to better communicate their urgency to other drivers.

It might not seem like a very big problem to have to needlessly wait at a red light at 3am.  But if you can really really really zoom out and add up all these "hidden demand" type problems that occur in a city as large as Los Angeles... then perhaps you might begin to appreciate the value of clarifying the demand for green lights.

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