Last week, Campus Times Photo Editor Parsa Lotfi repeated a common complaint among students (“Park It, UR,” Nov. 12, Opinions). Parking permits cost a lot, and parking tickets are annoying. Wouldn’t it be great if we paid less and got away with more?
It does seem, intuitively, that $450 or $500 a semester is a lot. It is frustrating when you miss the bus or when you want to stay on campus late. However, intuitions can be misleading.
The problem is that the price of parking cannot be considered in isolation. The school faces what economists call a two-part pricing problem: it must set prices for services like parking, food and laundry, in addition to setting a price of admission. It would be great for students if the school decided to simply charge less overall, but that’s not going to happen. When discussing pricing policy, the real question is: would we rather be charged more for this or more for that?
In the case of parking, things are simple. There is a fixed supply of parking spots, at least until we build a garage and expand the number of spots. The school already allows residential permit holders to park on campus after 4 p.m. and anyone to park after 7 p.m. During peak hours, nearly all parking spaces are full. Decreasing enforcement, lowering the price or allowing residential permit holders to park before 4 p.m. would not increase the amount of people who can actually park. The additional “cost” would be paid in the form of time spent driving around, and uncertainty over whether you can get a spot at all. When the school limits the amount of people who want to park by charging high prices for permits, then this money goes into the school’s pocket and can at least be used for other things or to defray other costs. If the school charges too low a price, then this difference is paid in the form of inconvenience and uncertainty. It generates waste or, in economic jargon, deadweight loss. (For more detail, take ECO 108 or 207.)
To be clear, I am not saying the school always does things perfectly—the complaint that people are being penalized for parking outside their zone when their assigned lots were full suggests that the school has indeed made a mistake. In fact, it suggests that the school should be charging more for the lots that fill up, not less, and should optimize the assignment of overflow lots.
I am also not claiming the school should raise or maintain high prices on everything. In fact, standard economic theory suggests that it would be better for the school to charge competitive prices at stores such as Hillside Market, rather than the captive audience/monopoly prices that it often charges. This is because the school does not face a fixed supply of groceries and could sell more groceries before taking a loss on each unit. Lowering prices would make students better off, and the school could capture the surplus by raising tuition. At the risk of sounding like a textbook, the gist is that schools are excellent price discriminators because they have detailed information about each student and can offer discounts (“financial aid”) accordingly. This is one of the conditions under which firms ought to favor a lower per-unit fee and a higher admission fee. Pricing theory generally focuses on profit-maximizing firms, but this result still holds even if we assume the school cares about student welfare. (And, it holds even more strongly if we give increased moral weight to the welfare of less-wealthy students.) There are, however, absolutely no conditions under which a profit or non-profit organization should charge so little for a good or service that the quantity demanded exceeds the quantity supplied, as acquiescing to every student complaint about parking would do.
Taylor is pursuing a master’s degree in data science.