On This PageWP 2006-16

Transforming Payment Choices by Doubling Fees on the Illinois Tollway
Last Updated: 11/10/06

Rising traffic congestion and the need to improve operational efficiency prompted the Illinois Tollway Authority to unveil plans to reconfigure its road network for “stop-free” electronic toll collection. Committing to an extensive construction program would have required the Tollway to ensure that enough drivers had electronic payment devices (branded as I-PASS). Conversely, without reconfigured toll gates the drivers would have had less reason to own an I-PASS. To resolve this potentially thorny chicken-and-egg problem, the Tollway put in place a new I-PASS distribution network and then dramatically raised the price for cash toll payments.

 

This paper focuses on consumer response to the change in relative prices. Using tollway traffic data, we document a substantial aggregate increase in electronic toll payments. The propensity to pay electronically rose uniformly throughout the day, reflecting the effectiveness of the Tollway’s actions in modifying behavior of both commuters and leisure drivers. However, not all drivers appear to have responded to the price change per se. To analyze the relative importance of price, income, and fixed participation costs we use the Census tract level data on employment and residential location to construct a ZIP-code measure of the likelihood of commuting to work via the tollway. Conditional on this measure, we show that the adoption of electronic payments among lower-income households was indeed influenced by the price change. In contrast, high- and medium-income households responded to lower fixed costs of obtaining I-PASS at conveniently located supermarkets. Finally, we document the role of social network relationships, as changes in I-PASS ownership for all income groups were strongly affected by I-PASS use among neighbors and co-workers.