CEO & Co-Founder
January 25, 2021
Try to remember the last time you drove downtown and found the perfect parallel parking spot right in front of your destination… did you pay for parking? Most people do, after all parking is a service and it’s the law. While paying a few dollars to avoid a ticket seems rational, the odds of getting a ticket are deceptively low—so low that you’d actually save money in the long run.
This post will explore the economics behind parking fees/fines from a theoretical perspective. There will be some math involved, overly-generous assumptions, and non-existent statistical significance. The focus on paying for parking is a somewhat satirical way to make a bigger point about the role of approximation in parking due to the lack of verifiable data. In other words: yes, you should pay for parking.
Let’s start by looking at the math behind deciding to pay for parking. There’s only 3 variables that really matter: the hourly rate, the cost of a ticket, and the likelihood of getting a ticket. To make things easier, let’s assume we’re looking at large cities with an average rate of $2/hour (Parkopedia) and an average meter-expiration ticket costing $40 (HowStuffWorks). For a 2-hour stay, you’re deciding whether a $4 payment is worth risking a $40 ticket. And since $4 is 10% of $40, logic dictates that a 10% likelihood of getting a ticket would make the two options economically equal.
Paying: $2/hour x 2 hours = $4
Not Paying: $40 ticket x 10% chance = $4
Unfortunately, it’s impossible to calculate the exact likelihood of getting a ticket, because cities don’t (and can’t) know how many violations they don’t capture. Some claims suggest 20% capture rate as the benchmark (PBOT), but there’s evidence to the contrary. By cross-referencing payment data with occupancy data, we can calculate the true number of violations and thus the actual capture rate. Some research suggests a mere 6% actual capture rate (Access Magazine), which is right in line with the 5-10% capture rate we’ve measured in pilots at Vade (depending on the grace period).
The above graph compares the total costs of parking if you paid $4 to park 1,000 times with the total costs of parking if you had a 7.5% chance of getting a ticket instead of paying to park 1,000 times. As you can see, the math favors not paying for parking given a large enough sample size.
Paying: $2/hour x 2 hours x 1,000 stays = $4,000
Not Paying: $40 x 7.5% capture x 1,000 stays = ~$3,000
Even if there’s more quantitative evidence suggesting capture rates are <10% than otherwise, the numbers are still too close and the sample size is still too small to draw any concrete conclusion. But don’t worry, there’s an elephant in the room yet to be addressed: there’s a finite number of parking enforcement officers.
Estimates range from 30% to over 50% of vehicles park without paying (Access Magazine), which again is in line with our own findings that 35% of minutes parked are unpaid. If everybody stopped paying, the number of violations would skyrocket relative to citations issued, leading to a much lower capture rate for the city and removing any doubt from the decision to pay or not pay for parking.
In addition to already being worth it for individuals to risk getting the ticket, more people choosing not to pay makes it even more worth it.
In our hypothetical doomsday scenario where every driver teams up to overwhelm parking enforcement capacity, eventually the city will catch up, hire more enforcement officers, and raise the price of tickets leaving drivers worse off than we started. Not to mention the other externalities like local business revenue and congestion—after all, the function of parking is to encourage turnover and provide access to downtown.
Paying for parking is a classic tragedy of the commons. If everybody acts on their individual economic incentive to not pay for parking and risk getting a ticket, we’ll be stuck with congestion and chaos until the city catches up and starts dishing out more tickets. Alternatively, if everybody ignores the economic incentive and pays for parking, the money you could have saved essentially becomes a form of taxation.
Parking management is about human behavior just as much as economics. We use today’s parking system because it works, not because it’s perfect. Most people pay for parking, most cities want to avoid having too high of a capture rate, and nothing has blown up in our faces (yet). For the last century, that’s as much as we could ask for. Without knowing the actual number of stays and ultimately the actual number of violations, cities have to use other metrics and proxy variables to measure success.
But times are changing. There more commercial vehicles parking than ever and unlike the general public, commercial drivers are profit-seeking and far more likely to take act on even the slightest economic incentive. As cities look at user-paid monetization for loading zones, any successful implementation needs to proactively address and align these incentives. On the bright side, the technology to generate verifiable data exists. As cities move along the adoption curve, we will see more cities using software to perfectly optimize parking rates, the costs of tickets, and their capture rate to achieve their goals.