Welfare Costs of Urban Traffic through Retail Prices

Abstract

This paper investigates the welfare costs of urban traffic by considering its implications on good-level prices. Using price data for 40 products from 70 cities (covering 47 countries) for multiple years, the estimation results suggest that the elasticity of good-level prices with respect to the time spent in urban traffic is about 0.5. This elasticity is further connected to the welfare of individuals by using the implications of a simple model. The corresponding investigation shows that reducing the time spent in urban traffic by one minute results in a welfare gain of about 1.3% for the average city, with a range between 0.8% and 2.3% across cities.