Case Study: Parking Pricing

Center for Advanced Hindsight

Problem

Driving to work alone remains the most common way employees commute in the U.S., at 76.4% of mode split in 2017. This figure is even higher at a local level, with 81.1% of commutes in North Carolina overall and 90% of commutes into downtown Durham (U.S. Census Bureau, 2017). A high volume of commuter vehicles negatively affects cities and employers on multiple fronts: parking structure costs, increased traffic, employee physical and mental health, as well as environmental externalities. The team aims to reduce the amount of single-occupancy vehicle commutes to work by discouraging individuals from parking.

Current Landscape

Free parking is the most common benefit offered to workers in the US and when employees don’t pay out of pocket for parking, multiple behavioral barriers prevent a shift to sustainable modes of transportation. Social norms make new hires believe they should value the free parking and drive to work. The zero price effect holds that people value free parking to an irrational degree, precisely because it is free. The endowment effect maintains that employees with free parking are unlikely to give it up, even if offered what it is worth, and the thought of losing it feels extraordinarily painful.

When employees pay for parking at work, they typically do so with one payment per period through their employer with automatic payments continuing until the employee cancels. As with free parking, multiple aspects of this parking model act as behavioral barriers that prevent a shift to sustainable modes of transportation. Low pain of payment through features such as lump sum autopay and direct paycheck deductions make parking feel free. Inertia holds that, once employees set up automatic payments for parking, they are more likely to continue and need a strong push to stop. Consistent with the sunk cost principle, employees will want to park more frequently to “get their money’s worth” once parking is paid for.

Intervention Ideas

Considering these behavioral barriers, several interventions may reduce demand for parking. Broken-up parking payments, such as forcing employees to pay daily or weekly, will increase the experienced pain of payment (see “Daily” and “Weekly” rows in Table 1). Increasing the price of parking the more often an employee uses it in a period (see “IP Week” and “IP Month” rows in Table 1)—incremental pricing—would also increase the experienced pain of payment.

Table 1. Potential pricing structures split across 20 working days in a month.

Pre-committment is the idea that specifying and committing to a future action can help achieve positive behavioral change. Asking employees to commit to (and pre-purchase) a number of days they will drive in a period and, subsequently increasing the price of parking for additional days, would motivate employees to decrease single-occupancy vehicle commutes. A parking cash-out program would offer employees the option to receive a cash payment for declining a parking space. This would eliminate the zero price effect, but could be challenged by the endowment effect.

Another potential intervention includes incentive matching. If parking is subsidized, employees that drive receive more benefits than those who commute sustainably. Employers can balance this by decreasing parking subsidies or adding benefits for sustainable commuters.

Why It Matters

Owning and maintaining parking spaces is costly—one space in a structured urban garage costs about $5,000 per year. A 2018 study estimated the cost of congestion for individual cities at more than $2,000 per driver per year for large cities. Transportation accounts for 29% of greenhouse gas emissions in America and, at current rates, researchers expect an 8°F increase in global temperatures by 2100, which would cost the U.S. approximately $400 billion. Discouraging individuals from parking would reduce single-occupancy vehicle use and help mitigate some of these negative externalities.

Source: https://advanced-hindsight.com/case-study/parking-pricing/