Mar 10 2011

The economic benefits of bike commuting

I feel like I’ve been here before. Gas prices are rising, approaching $4 per gallon. American drivers are freaking out, demanding the government “does something” to halt rising fuel costs. The next thing you know, people start buying bikes and riding them to work. Just like that, Americans change their lifestyles, abandon their cars, and reinvent themselves as bike commuters!

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The economics of this phenomenon barely requires explanation, but since this is an Economics teacher’s blog, I suppose I should explain it. A major determinant of the demand for a product is the price of related goods. In the US right now, fuel and cars are related goods; in economics terms, they are complementary goods. “You can’t have one without the other”. As gas prices rise, demand for driving cars begins to fall, since it becomes more costly to drive. The other good related to cars in this picture is a substitute mode of transportation, bicycles. The more expensive it becomes to drive a car, the greater the demand for bicycles.

Now, allow me to take my econ teacher hat off and put my avid cyclist hat (or helmet?) on. Bikes are way more than just a substitute for cars. The fact that every time gas prices approach $4 per gallon bicycle sales start to spike is bewildering to me. Do consumers really not know that riding a bike is always cheaper than driving a car? Why does it take slightly more expensive gas to motivate consumers to think about buying a bike?!

Okay, economist had back on now: You see, operating a car involves monetary costs that far exceed the price of gas. When I last had a car in the US, I paid nearly $200 per month in insurance (young males always pay the most), far exceeding my expenditures on fuel. In addition, there’s the fixed cost of the car itself, which once spent is a “sunk cost”, so should not affect an individual’s decision to drive or not to drive when the price of gas changes.

In addition to these explicit, monetary costs, however, there are also external, invisible costs of operating cars that make them an even less perfect substitutes for bicycles. More traffic on the roads, more accidents, more air and noise pollution, greenhouse gas emissions, environmental impact of the production and ultimate disposal of the car itself: these external costs are not even born by the driver when he or she decides to drive to work every day, rather they are born by society, taxpayers, and the environment.

My point is, making the decision to switch to commuting by bicycle should not require a 25% spike in fuel prices. The cost of filling your tank is in fact the least significant cost associated with driving a car when you look at the whole picture, and include not only those explicit, monetary costs paid by the driver, but include the external, social and environmental costs born by society as a whole.

Maybe I’m just on a bike high right now, since I got my new 29 inch wheeled fully two weeks ago and have ridden the 30 km round trip to work nearly every day since! Then again, maybe it really would make more economic, environmental, physical, spiritual and social sense if more people would park their cars and hop on a bike tomorrow morning!


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

6 responses so far

6 Responses to “The economic benefits of bike commuting”

  1. John B1on 11 Mar 2011 at 1:14 am

    Mr. Welker, your true emotions are revealed! Doesn't the economist always factor in the inherent greed of the consumer? If society is bearing the cost, the consumer is much less likely to allow that cost to affect his or her behavior.

    Also, per mile traveled, aren't bikes about 4x more likely be in an accident?

    Plus, working from home prevents the need for bike OR car.

  2. Jason Welkeron 11 Mar 2011 at 11:40 am

    Hi John B1,

    I think the economist always factors in the inherent greed of the consumer by assuming that consumers will only account for their private benefits and costs when deciding whether or not to engage in a particular activity. This is where economics can shed light on human behavior, however, by acknowledging the existence of external costs that individuals rarely bother to consider!

    An economic solution to this problem is simple. Higher fuel taxes will move more people to ride their bikes, take public transport, carpool or work from home. But good politics does not equal good economics, and the $0.14 federal fuel tax does little to nothing to incentivize healthy, environmentally friendly behaviors among American commuters.

    Responding to your statistic that bikes are 4x more likely to be in an accident, that may be true, but I would also suspect that the severity of the typical bike accident is much less than the typical auto accident. Also, if more people rode their bikes, they'd probably choose to work closer to home, reducing the need to travel as far as they would by car. Of course, this is all a pipe dream as long as fuel prices remain as low as they are in the US. Here in Switzerland gas is currently selling for over $8 per gallon. You don't hear the Swiss complain, but then again we have outstanding public transport and bike lanes on every road in the city, so the incentives are in place to encourage environmentally and physically healthy modes of transportation.

    Wish I could say the same for the US!

    Thanks for the comment!

    Jason

  3. […] has written an excellent piece on the economics of bike commuting for his economics blog. My favorite bit is below, but please, read for yourself! In addition to … explicit, monetary costs, however, there are also external, invisible costs of operating cars that make them an even less perfect substitutes for bicycles. More traffic on the roads, more accidents, more air and noise pollution, greenhouse gas emissions, environmental impact of the production and ultimate disposal of the car itself: these external costs are not even born by the driver when he or she decides to drive to work every day, rather they are born by society, taxpayers, and the environment. […]

  4. Danimalon 25 May 2012 at 7:12 am

    I know many people who would be very happy to ride to work but do not do to the lack of facilities made available by their employer (showers, lockers). I believe many more are willing from a fitness and financial standpoint but they may not be enough of the work force to constitute facility change from their employer. My own employers administration may not say it but are clearly not happy with me sweating on arrival. I am in complete agreement with your blog, but a larger change needs to happen all around.

  5. welkerjasonon 25 May 2012 at 3:46 pm

    Danimal, I couldn't agree more! I am lucky to work at a school that provides a designated changing room and showers for teachers. Very convenient! When I bike commuted in college, though, I remember carrying a change of clothes and "showering" at the sink in the bathroom and changing there. Worked in college, but would be less than ideal as a professional.

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