The Danger of Free

Two weeks ago I wrote about parking, and the strange way in which it's priced. I started thinking about this again as I was watching this video with Dan Ariely, who's done some pretty interesting research on the concept of 'free'. (Click through to watch, because Big Think's embedding fails).

(from Flickr user poptech)

What's interesting isn't just that people consume more of something when it doesn't cost anything - that's predictable. Instead, people wildly over-consume things when they're free because of a psychological attraction to not having to spend money. Even once a small change is placed on a good or service, the demand drops more than you would expect.

Interestingly, I was at a grocery store in Washington DC last weekend, where every bag you take incurs a 5-cent charge. I paid the 5-cents, because I needed a bag; but the number of bags being taken from stores in DC has dropped drastically. From the Washington Post:
In its first assessment of how the new law is working, the D.C. Office of Tax and Revenue estimated that food and grocery establishments gave out about 3 million bags in January. Before the bag tax took effect Jan. 1, the Office of the Chief Financial Officer had said that about 22.5 million bags were being issued each month in 2009.
In the scheme of things, 5-cents per bag is nothing, but psychologically, people don't like to pay. What's happened is that people have gotten smarter about how they shop. Now they consciously think before going to a store, they bring their own bags to pack stuff in, and they are generally less wasteful. A mere 5-cents is responsible for a huge drop in bag consumption.

How does this apply to parking spaces? If Ariely's theory holds, it means that people are wildly over-consuming parking spaces in places where no money changes hands for the privilege of parking a car. Motorists aren't thinking hard enough about the trips they take, because they know a free parking space is waiting on the other end.

Opponents of parking changes often argue that they're doomed to fail because, if one strip mall starts charging for parking, people will just get in the car and drive to a different strip mall. They say it's a race to the bottom that will only make businesses worse-off.

Admittedly, this is compelling in theory, but I could just as easily argue that people who don't want to pay 5-cents for a bag in DC will get in the car and drive to Virginia or Maryland to circumvent the charge. Of course, rational people realize that the cost of leaving DC vastly outweighs the 5-cent savings on bags.

There's a fear that if parking is charged at the 'market rate' that it's going to be really expensive. More expensive than the typical person can afford. That's not necessarily true; because if switching from 'free' to any charge, even a tiny one, changes parking behavior like a 5-cent bag tax changed shopping behavior, then the demand for spaces might drop significantly as well. A small charge would make people smarter about how they park, and consequently, how they consume parking spaces.


    On August 30, 2010 Paul said...

    Personally, I believe that while paying for parking definitely helps encourage people to take other methods of transportation, it definitely is discouraging.

    As you said, if one shopping mall begins to charge for parking, I might go to another. The main reason for that, though, is not because of the price (assuming the cost feels reasonable) -- it would be for the convenience. A large problem with paid parking is that it really discourages you from sticking around long. If I'm paying for 30 minutes, I'll make perfectly sure that I am gone by then, and in doing so, I could very well miss out on seeing/doing a few things that I otherwise wouldn't. Throw in the extra little stress about avoiding a hefty parking ticket, and it just seems simpler to go to somewhere that has free parking.

    That's not to say that a good parking system can't overcome that, but the typical "throw in a quarter and get 30 minutes or so" system is pretty discouraging.


    I think paid parking needs to be coupled with reasonable transit options. I pay to park at my campus and during the hours I can't park for free on campus, I can park at a park and ride provided by the school and shuttle over. However, even more convieneint would be if the city bus that comes past my house came every 10 minutes and I wouldn't have to own the car at all. The bag tax works because its so easy to get bags from home(and DC stores handed them out). You can't hand out a 10 minute lead time bus route unfortunately.