Responding to Incentives

We should assume that consumers act rationally given the incentives that they face. Repealing the policies that have shaped current behavior such as undervalued public parking, density restrictions, and tax breaks for homeowners will result in people moving closer to their work places and driving less.

Emily Washington at Market Urbanism has a great piece on the long commutes that so many people choose.

I agree with her assumption mentioned above… that is that consumers act rationally based on the incentives in place.

I chose to buy a house and move out amidst the sprawl when I lived in Indianapolis. After getting married and in preparation for having children we bought a house in the suburbs. Government policy favors this decision. Property taxes were lower. Purchasing the house gave us a smaller payment than rent in the city.

After living there for a few years gas prices started rising. My wife drove a Honda Civic, but I drove a 4×4 Toyota truck. I finally broke down and bought another Honda Civic for my commute.

Why? Why didn’t I move closer to my office? Why didn’t I move closer to one of the bus routes? Because the government subsidizes the road infrastructure. Zoning laws promote low-density sprawling suburban developments. Tax law gives an advantage to those who take out a mortgage to buy a home.

I think governmental incentives, and all their unintended consequences, are responsible for the so-called “irrational” decisions made by people when it comes to residences and commutes. Am I silly for thinking that, if governmental incentives are removed, people will naturally move into more dense housing areas that reduce their commute and travel times.