We all love something for nothing – but what is the real cost?

There is a childlike excitement that comes from being offered something for free. Often regardless of whether you want or need something, if you are offered it at no cost, you take it. ‘Free’ is not just cheaper than say 1 or 2p, it has added value: the zero price effect.

Last year’s introduction of the 5p carrier bag charge has shown how this effect works. The charge exploits our irrational attachment to ‘free’, taking advantage of human behaviour to influence how we act – it is a nudge. Instead of accepting a bag out of habit and convenience, people are now forced to actively decide whether they need one.  The government recently released statistics showing the number of carrier bags issued by supermarkets is down 83% since the introduction of the charge. That means we’ve been using around half a billion less carrier bags each month – a huge scale reduction.

Nudges have been effective across a number of other fields – from loft insulation to organ donation – but how might they be used to influence transport decisions? Many cities have attempted to encourage people out of their cars by using incentive schemes, e.g. paying commuters to cycle to work. These schemes have the potential to be of significant benefit both to those who cycle and receive payment and to those who continue to drive and experience less traffic congestion. However, they have had little success at mode shift. The same was true for a 1970s trial in Rome which attempted to reduce congestion by making public transport free (there was little change in car usage but a substantial increase in demand for public transport from those who would have otherwise walked!). People feel the effect of a loss more than that of an equivalent gain; a charge on car parking at work would be more effective than a subsidy on public transport fares.

To be effective, nudges should address what is stopping people taking the rational course of action in a situation. As with carrier bags, it is habit and convenience that leads us into our cars to make unconsidered, unnecessary journeys. With no upfront cost and petrol paid for in advance, the marginal cost is zero; each trip feels free. Could this be acting like the zero price effect? If it is, maybe it could be changed by displaying the cost of each journey on car dashboards, a smartphone app or even with UBER-style billing to email individuals the cost of each journey they have made. Taking inspiration from HSBC, this nudge could be strengthened by displaying the aggregate cost of a journey, for example, over a month.

Considering both operating and insurance costs (assuming some form of ‘Pay As You Drive’ policy) short trips cost 18p/km (28p/mile). This is partly due to the higher than average fuel consumption at the start of a journey, meaning driving to the local shop (a free 15 minute walk away) costs 46p per trip. Making people aware of this cost may help them rethink, or rather start to think about when they use their cars. Short trips like this (less than 2 miles in length) make up 23% of car journeys. If each person switched to walk/cycle one short journey a month, we’d not only save a collective £135m a year, but almost 900 deaths would be prevented due to the health benefits of walking. In environmental terms, it would prevent 70,000 tonnes of CO2 being released into the atmosphere – equivalent to the amount produced each year by roughly 14,000 households.

Our attachment to cars is something that is difficult to break, but if nudges are able to have a small effect on behaviour the impact could be substantial. While they might appear a simple concept, nudges must be carefully considered and targeted. Ideally, they should be opt out not opt in: people will put off signing up to an incentive scheme if this process is time consuming, just as they are likely to put off downloading an app which benefits them if it will also tell them something they don’t want to hear.  The role of a nudge is, after all, to take advantage of human behaviour, which could be its very downfall if procrastination is allowed to get in the way.

Sophie Beevers is a Consultant at Volterra.

Image:Frau, graffiti by Sascha Kohlmann is licensed under CC BY 2.0

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e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.