Tolls, Tradeoffs, and Interstate Commerce

After multiple attempts, the New York State Assembly approved a congestion pricing plan for Manhattan below 60^th Street on March 31, 2019. The approved plan positioned New York to become the first American city to adopt a system similar to those implemented in London, Stockholm, Singapore, and other international cities. The plan faced several years of political and legal uncertainty: New York Governor Kathy Hochul paused and later revived implementation, and neighboring New Jersey brought environmental, procedural, and constitutional challenges in federal court. Congestion pricing in New York City began on January 5, 2025, before the newly inaugurated Trump administration’s Department of Transportation withdrew approval and ordered the plan suspended.

Congestion pricing policies are a type of surge pricing that impose higher-than-usual tolls on vehicles entering high-traffic areas during high-demand times. Economists describe these charges as a Pigouvian tax—a tax that forces actors to internalize the broad social costs of their actions, such as pollution, traffic delays, and noise. By raising the price of driving into congested areas, congestion pricing encourages drivers to use transit alternatives, take alternate routes, or drive less during peak periods. To support transit alternatives, the New York plan dedicates 80 percent of the toll proceeds to improving mass transit.

Supporters argue that congestion pricing can reduce traffic delays, improve travel-time reliability, and make better use of existing road capacity, allowing freer movement without new infrastructure. They also emphasize potential environmental and health benefits, citing international evidence that congestion pricing may be linked to lower vehicle emissions, reduced air pollution, and reduced instances of driving-related health issues such as asthma and traffic injuries.

Opponents respond that new tolls would fall disproportionately on low-income and essential workers who lack viable alternatives, while failing to deliver meaningful reductions in gridlock or improvements in air quality. Some small businesses warn that fewer customers will be willing to enter the tolled area and that higher delivery costs will be passed on in the form of surcharges and higher prices for goods. Legal commentators also question the constitutionality of a scheme that effectively imposes higher costs on out-of-state commuters than on in-state residents.

New York’s congestion pricing controversy has not tracked cleanly along party lines and is more clearly identified with a suburban-urban divide. The most vocal critics of congestion pricing, for example, include both New York Republicans and the Trump administration and New Jersey’s Democrat governor, Phil Murphy. Similarly, amid concerns from suburban and outer-borough Democratic leaders, New York’s Democrat governor, Kathy Hochul, indefinitely paused the plan, only to revive it weeks after the election.

With many advocates touting the benefits of congestion pricing and several major cities—including San Francisco, Chicago, and Philadelphia—considering or implementing similar schemes, the fight over congestion pricing is more relevant than ever.

In today’s Saturday Seminar, economists, urban policy experts, and legal analysts assess the promise and potential pitfalls of New York City’s congestion pricing plan and what it may mean for the future of urban transportation.

• In a working paper, Cody Cook of Yale University and his coauthors use large-scale traffic and mobility data to assess the real-time impact of New York City’s new congestion pricing program. They find that tolling cars entering Manhattan’s business districts increased average road speeds by approximately 11 percent, but left air quality and business activity largely unchanged. Cook and his coauthors conclude that the policy’s benefits extended beyond the tolled area, lowering travel times throughout the metro area. The authors estimate that these efficiency gains generated at least $14 million in weekly welfare improvements—such as faster non-tolled trips, improved fuel economy, and reduced carbon emissions—evidence that congestion pricing can deliver broad economic value without negatively impacting local businesses.
• In a working paper, Stanford University’s Michael Ostrovsky and the University of Chicago’s Frank Yang argue that New York City’s paused congestion pricing plan would have imposed disproportionate costs on individual drivers while failing to reduce traffic meaningfully. They show that the plan charged private car commuters up to six times more per trip than taxi or delivery passengers, even though those commercial vehicles account for most congestion in Manhattan. The authors instead propose a modified fee scheme based on each vehicle’s contribution to congestion. The authors suggest that time-based and distance-based tolls on taxis, rideshares, and delivery trucks could make the policy both fairer and more effective, while still generating sufficient revenue for transportation programs and targeted compensation.
• In an article in Logistics, Supply Chain, Sustainability and Global Challenges, logistics consultant Adekunle Mofolasayo argues that congestion and limited transportation funding demand more innovative pricing tools than congestion pricing. Although he acknowledges that congestion tolls make travel costs more apparent, disincentivizing driving, Mofolasayo emphasizes the disproportionate impact such tolls have on low-income road users. He argues that fuel taxes are also insufficient to fund infrastructure, noting that electric vehicles contribute to infrastructure wear without paying fuel taxes. Mofolasayo instead proposes a system that charges road-users based on the distance they travel. Paired with progressive taxation and improved public transit, he concludes that a vehicle-distance-traveled system could both reduce congestion and support a self-funded, more equitable transportation finance regime.
• In a UC Law Journal article, the University of Kentucky’s Ramsi Woodcock argues that surge pricing—raising prices in response to demand spikes—should be illegal. He contends that when firms rapidly hike prices in response to strong demand, they are not doing so in response to any new costs or in order to supply any additional output. Absent any changes in costs or quantity supplied, Woodcock argues surge pricing is an attempt to extract wealth from consumers. He characterizes this extraction as “the very definition of consumer harm in antitrust” and calls for a per se rule against surge pricing that would penalize firms that raise their prices faster than they increase their supply.
• In a Brooklyn Law Review note, Emily Dulberg concludes that New York’s congestion pricing plan runs afoul of the Dormant Commerce Clause, which prohibits states from creating laws that discriminate against out-of-state commercial interests. Dulberg argues the scheme discriminates against out-of-state residents who must pay tolls to drive in the tolled area while many New York residents living within the zone are not tolled for the same behavior. Applying Supreme Court Dormant Commerce Clause precedent, she contends courts would likely find the program unconstitutional because it shifts congestion costs to nonresidents without providing those nonresidents with tangible, substantial benefits. To avoid this issue, Dulberg proposes “area pricing” based on driving within—rather than entrance into—the restricted area.
• In a Journal of Law and Mobility article, Arizona State University’s Gregory Shill explores structural issues revealed by New York City’s congestion pricing fight. He explains that congestion pricing’s benefits are uncertain for both urban and suburban residents—leading both to undervalue the policy—but that suburban commuters disproportionately bear the costs. Aggrieved suburbanites, Shill contends, thus come to dominate the conversation around congestion pricing. New York City must rely less on state and federal action to avoid persistent undersupply of this and other transportation services urbanites demand, he argues. Shill develops a set of policy tools—including land-use reforms, parking policy changes, and bus prioritization—to advance local transportation interests, regardless of the fate of the congestion pricing plan.