Traffic congestion has become one of the plagues of modern life in a big city. Time spent ensnarled in traffic is not simply time wasted; for most drivers, it is time miserably wasted. Transportation researchers have identified three paradoxes in which the usual remedy for congestion--expanding the road system--is ineffective or even counter-productive. The resolution of these paradoxes employs the economic concept of externalities to identify and account for the difference between personal and social costs of using a particular roadway. This not only clarifies the economics of traffic congestion, but it also points to ways in which the congestion problem can be solved with clever applications of the standard pricing tools of economics.
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