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One of the fundamental tenets of public policy is that the government should step in when the market fails. One of the ways in which the market most often fails is by producing negative externalities – that is, the costs an activity generates that are not reflected in the price paid by the person doing the activity. Traffic congestion is a textbook case of a negative externality. People who drive into Manhattan impose costs (congestion, air pollution, threats to cyclist and pedestrian safety) on other people, including those who choose not to drive into Manhattan. Thankfully, a simple policy fix exists for negative externalities: internalize them. That is, charge the person involved in the activity for the costs that would otherwise be borne by uninvolved third parties. Congestion pricing does just this, with the added bonus that the revenue collected will flow into New York’s beleaguered yet hardworking public transit system. Congestion pricing reflects the true cost of driving into the city while simultaneously incentivizing and subsidizing an alternative. It is fair, efficient, and generally good policy.

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