Three Essays on Transport Economics and Policy Lana Krehi´c Norwegian University of Science and Technology Faculty of Economics and Management Department of Economics Doctoral thesis For the degree of philosophiae doctor Trondheim, March 2021 ii Preface This thesis consists of three independent essays addressing different topics within transport economics and policy. All chapters are based on data from several sources that are combined for the purpose of this thesis. The essays in Chapters one and three are authored by myself. The essay in Chapter two is joint work with Professor Colin Green at the Department of Economics at the Norwegian University of Science and Technology (NTNU). iii iv Acknowledgements During the three years of my PhD, I have gotten to know many professors and fellow PhD students who have created a supportive environment that has helped me finish my thesis. First, I would like to thank my supervisor, Colin Green, who has always had time for my questions and treated every concern I had seriously. He has provided invaluable feedback and supplied me with encouragement, in addition to teaching me a lot about economics, research and Australian pecu- liarities, for which I am grateful. I would also like to extend my gratitude to co-supervisor Jørn Rattsø, who has read my work in progress and widened my perspective. I thank my other colleagues at the Department of Economics for interesting general discussions, constructive feedback on my presentations and for inspiring me with your research and participation in various public debates. I would also like to credit the administrative staff for their helpfulness in any needed situation. Further, I am grateful for being trusted with working in the seminar committee and various students support assignments. The PhD environment during the last three years has been sublime, and I want to especially thank Sigrid, Irmelin, Isabel, Mia and Haakon. I have appre- ciated the big and small discussions about important and unimportant topics, seminars, quizzes, workouts, coffee tastings and leisure activities, which has filled me with joy and motivation to keep working. Importantly, the knowledge and passion you exhibit for your research areas have inspired me in my own project. Last, but not least, I wish to thank my family for supporting and believing in me, and especially Einar, for his patience and counsel. v vi Contents Introduction 1 Chapter 1 A free rider problem? The effect of electric vehicles on urban toll prices in Norway 7 Chapter 2 Bar Closing Hours and Traffic Accidents: Evidence from Municipal Vari- ation in Norway 41 Chapter 3 Safety first? The effect of studded tyres on traffic accidents and local air pollution 72 vii viii Introduction Transport choices are classic examples of individual decisions being made without fully accounting for the effect it has on society. For example, a person considering riding their car to work will only account for the direct costs of the trip, such as gasoline and parking expenses. However, for society as a whole, a car trip has additional costs like road wear and tear, traffic congestion and air pollution. Similarly, a person that drink-drives considers only the risk of being caught by the police, whereas the cost inflicted on the society encompasses the risk of injuring others, the risk of increasing pressure on healthcare systems, and increased policing expenses. This inconsistency of costs carried by the individual and the society, namely negative externalities, represents a welfare loss for the society as a whole. A common approach to internalise these externalities is to introduce taxes and regulations to the market as suggested by Pigou (1920). In transport, but also in other areas of economics, determining the optimal tax relies heavily on comprehending the damages associated with the negative externality (Vickrey, 1963). In practice, however, there are multiple factors that complicate the pro- cess of deciding on the proper market intervention. First, it is challenging to identify the extent of the negative externality. Second, the design of a policy depends on factors that are not associated with the externality itself. For ex- ample, it is influenced by what level of government it is enacted, the political composition of policy-makers and which laws and taxes are already in place. This creates a demand for research that seeks to identify negative externalities and that thoroughly covers the causal effects of policies that have been or will be introduced. Causal relationships are useful for making predictions about the consequences of an intervention (Angrist & Pischke, 2009), which in turn enables predictions 1 that can be used to form evidence-based policy recommendations. Therefore, it is important for studies undertaking empirical methods to identify causal ef- fects. In general however, there is a lack of causal evidence in many aspects of transportation research. One reason for this is that policies rarely are introduced alone. For example, the introduction of congestion charges are often accompa- nied by increased public transport supply, and alterations in drink-driving laws are supplemented with changes in night-time policing activities. This makes it difficult to disentangle the impact of one particular regulation, and consequently prevent the identification of causal effects. In this thesis, which consists of three independent essays, I aim to empirically identify the causal effects of different policies on transport related outcomes. I do this by studying policies that have been enacted in multiple local jurisdictions in Norway over several years. This allows me to extract information on different levels, both cross-sectionally and over time. Moreover, by using the appropriate research designs, I am able to separate the effect of a policy from other effects and thereby identify the causal parameters of interest. In the first essay, I investigate how the national electric vehicle policy in Nor- way effects the prices in local urban toll rings. Numerous cities around the world have attempted to internalise congestion costs from road traffic by instituting charges for entering their city centres. Traditional factors included in the costs of congestion typically entail delay costs and occasionally the cost of accidents (Vickrey, 1963). In Norway however, tolls have primarily been used as a means to finance new roads and not as a instrument for reducing the congestion and the pollution levels (Larsen & Østmoe, 2001; Small & Verhoef, 2007). Concurrently, from the 1970s and onward there was a strong desire to establish a production of electric vehicles in Norway. In an effort to increase demand, owners of electric vehicle were granted numerous tax exemptions relating to the purchase and the use of electric vehicles. These exemptions are still in place today and equates to 5.78 billion NOK (approximately 613 million USD) in 2017 alone (Ministry of Finance, 2017). One of the tax benefits of owning an electric vehicle is the exemption of toll charges, which translates to an income loss for the local urban toll rings. Using panel data of Norwegian cities with toll rings, I exploit regional varia- 2 tion in an instrumental variable approach and find that a higher share of electric vehicles increases toll charges. The result implies that owners of conventional cars pay more per passing because of the national exemption. While this may be an outcome that is advantageous with respect to the discouragement of the use of fossil fuelled cars, it has a an additional consequence that has implications for social welfare. As the majority of electric vehicle owners have an above-average income, exempting electric vehicle owners from toll charge suggests a distribution effect where low income groups end up paying the largest part of the increased toll price. In the second essay, written in collaboration with Colin Green, we study the relationship between bar closing hours and night-time traffic accidents over a ten year period in Norway. According to the World Health Organization (2007), approximately 20 percent of fatally injured drivers in high-income countries have a blood alcohol concentration above the legal limit. While changes in bar closing hours and its effect on traffic accidents have received some attention in the lit- erature (see for example Vingilis et al. (2005); Green et al. (2014); Biderman et al. (2010)), the studies have been limited to exploring changes in one direction and of the same magnitude, with results been inconclusive. Municipalities in Norway are free to choose opening hours within quite broad nationally set limits, namely between midnight and 3am. Consequently, closing hours are subject to local public debates and serve as political planks that lead to substantial variation both across municipality and time. We utilise this variation and find that, on average, the effects of closing hour on traffic accidents is zero. However, when accounting for population differences among municipalities, we find that the effect in fact is heterogeneous. Most notably, longer hours in highly populated areas are associated with a reduction in accidents whereas the opposite is true for less populated municipalities. The probable mechanisms producing these results are that unified and early closing hours increase the risks for multiple drinkers driving at the same time. Moreover, it makes multiple vehicle accidents more likely due to higher underlying traffic flows that naturally occur earlier at night. Indeed, later closing hours may also limit alternative modes of transport or make it more expensive, such as public transport or taxis, which is germane to less populated municipalities. The results imply that, depending on the context, 3 employing closing hours as a policy instrument can have large effects on night- time traffic safety. In the third essay, I investigate how a particular pollution-restricting policy, namely the annual studded tyre ban in Norway, impacts traffic accidents and pollution levels. Although offering superior traction on icy roads, the use of studs is frequently debated.