Stuck in Traffic : Measuring Congestion Externalities with Negative Supply Shocks

Congestion is one of the most challenging issues of urban agglomeration. Congestion costs are higher than socially optimal levels, and little is known about the key parameters needed to design optimal policies. This paper exploits an exogenous reduction in for-hire vehicle supply in New York City to estimate their effect on travel speed and document substitution patterns to other transportation modes. A 9.1 percent fewer taxis are associated with increased travel speed by 0.46 minutes per mile, a 7.1 percent increase. Consumer surplus gains from increased speed fade away as waiting times increase and people switch to other transportation modes