3
The Potential Effects of Autonomous Vehicles on Economic Sectors
Traditional automobiles produced enormous benefits to the United States when they were introduced in the early 1900s. They improved travelers’ accessibility for existing trips, which had been taken by horse or railroad, and facilitated new trips. Automobiles also dramatically changed land use because people could live in roomier and less expensive houses on larger lots, at some distance from their workplaces. While automobiles displaced some existing jobs and reduced the use of other modes of transportation, they also created new jobs, especially in car production and servicing and in building and maintaining the U.S. road system. However, as the country continued to grow and automobiles were used more frequently for work and nonwork trips, the social costs of automobiles increased, including congestion, fatal and nonfatal accidents, air pollution, and the adverse effects on travelers’ emotional health.
The introduction of large trucks to carry freight improved industry efficiency and productivity, but it also contributed to motor vehicles’ harmful effects on congestion, health, the environment, and safety. In addition, large trucks damaged road pavement and bridges and threatened the viability of freight railroads, which were hamstrung by economic regulations, as they captured a large share of freight traffic, especially in high-value commodities.
By enacting inefficient policies for the road infrastructure that was used by cars and trucks, policymakers failed to maximize the benefits and reduce the social costs of those modes of transportation. Autonomous vehicles can reduce the welfare costs created by inefficient public policies in an environment of nonautonomous vehicles. They have the potential to reduce congestion, improve health and safety, and increase mobility for those people who do not have access to or cannot drive a vehicle; improve land use in urban areas by freeing up parking space that could be used for more socially desirable purposes; and disrupt but have overall positive effects on the labor market and the U.S. transportation system. However, government policy could strongly affect the extent to which those benefits are realized.
From an economic perspective, autonomous vehicles’ most important effect is likely to be on congestion, because transportation is an input of many other economic activities. The significant improvement in highway travel time and its reliability attributable to autonomous vehicles is likely to generate benefits beyond the transportation sector. Indeed, highway traffic is most dysfunctional in dense urban areas. Cities thrive by connecting people, and when urban mobility falters, cities lose their capacity to generate economic vitality, including employment, job growth, idea sharing, and innovation. When cities fail, national economies suffer, so it is not hyperbole to claim that problems generated by urban traffic congestion rise to the level of national importance and that autonomous vehicles may benefit an entire economy by ameliorating those problems.
By reducing congestion, reducing travel time, and improving travel-time reliability, the adoption of autonomous vehicles could also yield other significant economic benefits:
Employment benefits. Individuals’ choices of employers and employers’ choices of workers could expand and result in greater employment. Chetty and others (2014), for example, finds that longer commuting times are strongly and negatively related to the probability that a household will escape poverty, implying that reductions in congestion could expand job opportunities and increase employment, especially for the least affluent members of society.
Agglomeration benefits. Firms and urban residents benefit from the spatial concentration of economic activities, known as agglomeration economies (Glaeser and Gottlieb 2009). Puga (2010) summarizes the evidence that urban density contributes to agglomeration economies and higher earnings. Thus reductions in congestion and improved travel times may improve those economies because people in all walks of life could reach their destinations more quickly and thereby share information more easily, finish certain tasks sooner, and so on.
Trade benefits. Anderson and van Wincoop (2004) shows that travel distance and travel time represent important components of the cost of international trade, which accounts for some of the freight flows over the U.S. transportation network. Those factors are also an important cost of the freight flows generated by intracity and intercity trade. Truck transportation carries a large share of U.S. intracity, intercity, and international freight flows. Reductions in congestion on urban and intercity highways lower the cost of shipping goods and increase freight flows, resulting in more production and consumption throughout the U.S. economy.
Productivity benefits. Improving the speed and reliability of freight traffic enables firms to reduce their inventories and to improve productivity (Shirley and Winston 2004). Productivity is further enhanced if all inputs in a firm’s production process can reach their destinations faster. For example, Prud’homme and Lee (1999) estimates that a region’s productivity increases 1.3 percent when the area that can be reached in a given time period increases by 10 percent. Thus reductions in congestion can broadly affect an entire economy’s productivity.
How big an impact could autonomous vehicles have on the economy? No one can know for certain at this early stage. However, our calculations suggest that the economic benefits could be quite substantial and that they are likely to be broadly consistent with the impact of other significant improvements in mobility in the United States.
In the next three chapters, we report on an econometric model developed to estimate the causal effects of highway congestion on the growth rates of gross domestic product (GDP), employment, wages, and commodity-freight flows for congested counties in California. Lacking a natural experiment to measure congestion’s effects, we use a plausible instrumental variable for congestion that reflects exogenous political considerations in highway spending, and we perform several tests that indicate that our estimates are not likely to be biased by omitted variables or reverse causality. Our estimation results for California are corroborated by findings in the literature on the effects of reducing congestion in specific sectors and by circumstantial evidence on the effects of reducing congestion in nontransport sectors. We then use the econometric estimates to simulate how widespread adoption of autonomous vehicles would impact the economic performance measures by reducing congestion levels in California. Finally, we extrapolate those findings to the nation by presenting a base-case and more-conservative estimates for sensitivity analysis.
We summarize our main findings here so nontechnical readers may pass over the technical chapters and skip to chapter 7, which discusses other effects of autonomous vehicles in a nontechnical manner. To predict the effects of autonomous vehicles on the California economy, we assume that autonomous vehicles would lead to a 50 percent reduction in freeway delays (see chapter 6 for details). Strikingly, we estimate that if California motorists had been using self-driving vehicles in 2010, the state would have created nearly 350,000 additional jobs that year, increased its real GDP by $35 billion, and raised workers’ earnings by nearly $15 billion.1 Using available 2007 data on freight flows between California counties as a measure of trade benefits, we find that autonomous vehicles would have increased the value of intercounty shipments of commodities by $57 billion.
Extrapolating those effects to the nation, we predict that autonomous vehicles in 2010 would have added 3 million additional jobs to the U.S. economy, raised the nation’s annual growth rate by 1.8 percentage points from a 2010 baseline GDP of about $14.6 trillion, and increased annual labor earnings by more than $100 billion. In other words, the economic benefits to the United States are nearly eight times greater than those to California.
Naturally, an intuitive back-of-the envelope calculation of the potential economy-wide benefits that autonomous vehicles could generate by reducing congestion would be helpful. However, this type of calculation is difficult here because we are estimating benefits in nontransport sectors, where the benefits depend in a complex way on how consumers and firms
