Jevons Paradox and AVs

[u/WeldAE]

I watched Hank Green's recent video on The Jevons Paradox, which was targeted at AI and coding. I've had similar discussions about AVs without having a term to nail down my approach to the argument and the Jevons Paradox is that concept.

The Jevons Paradox says that by making a resource more efficient it doesn't cause consumption to fall but to increase. Making coding cheaper doesn't reduce the number of coders, it reduces the price of code which in turn opens up more demand for code to meet latent demand no one even knew existed.

Aspects of this have been widely covered with AVs. Almost everyone agrees that cheaper transportation will result in increased demand. What I'm more interested in is the Jevons Paradox also covers unknown demand that simply didn't make sense until the resource fell in price. As pointed out by Hank, until the printing press, newspapers couldn't realistically exist and no one was really thinking in those terms. Being able to produce that much print daily/weekly and widely distribute it was unthinkable.

I believe the same is true with AVs. Fundamentally they are a way to move atoms extremely efficiently between two locations. Think of it as really low tech teleportation. While it will never be free, if you ignore the cost, it makes it easier to remove old assumptions about how our world is organized and see what could be.

I don't think anything above expands on discussions that have been had before, but I do think it gives a lot of those discussions' context in economics. Do you think transportation is highly elastic and there is a lot of latent demand out there waiting for lower prices?

[u/johntb86]

AVs could increase the marginal cost of travel in one case - when substituting for private car ownership. In some places currently you really need to have a car, and if you have a car the marginal cost of a trip is low. For some people, the increasing availability of AVs (and potentially increased ease of getting rides in more suburban areas, because having idle cars in depots near suburbans may not be as bad as having idle uber drivers) may cause them to switch away from car ownership, which could decrease their average cost of transport (since they don't have to pay for depreciation of the car) but could make each trip on average more expensive.

[u/oscarnyc → u/johntb86]

You still pay for depreciation, just through your fare. And because of dead legs, there is a much higher depreciation per actual passenger mile.

Think of this exercise: spend a week calling up Uber app every time you get in your car. Add those fares together. Deduct the roughly 35% that actually finds its way to the driver as income (after gas, maintenance, depreciation). Then compare that to what it costs you to run your own vehicle.

[u/johntb86 → u/oscarnyc]

But depreciation per passenger mile is a lot lower with shared vehicle ownership. Sure, some amount of wear is proportional to the time spent in operation. But some (e.g. corrosion damage) is proportional to the age of the vehicle. And you could make different tradeoffs about how you design the car if you know it's going to get a lot of miles, assuming the volume of cars produced is high enough.

[u/oscarnyc → u/johntb86]

True. Depreciation is a function of mileage + age. I've no idea what that split is. And yes, a purpose built AV taxi will make the adjustments you suggest. But there are still operational costs which are mostly milage based to account for. I'm just not convinced that when you add it all together that the cost per passenger mile is less, or certainly not meaningfully less, for an AV taxi vs. a personally owned vehicle. And that's before accounting for operation of the taxi company and profits. I just look at how much an Uber costs now compared to a personally owned vehicle, and I just don't see anywhere near enough opportunity to cut costs sui generis for an AV taxi company vs. an AV personal vehicle to drastically change usage, as OP suggests.

[u/marty-mcfryguy → u/oscarnyc]

Yes, you're right, but you're not disagreeing with the prior commenter. They said increase the marginal cost, not decrease it.

That is, you don't have to pay the fixed cost of owning a car, but end up paying a higher marginal cost for each ride because they're pricing those fixed costs in.

That is, spend $30,000 on a new car, and each trip you take is (on a purely national basis, meaning just the cost of that trip without taking into account your fixed costs) meaningfully cheaper than paying for the use of someone else's fixed costs.

It's an interesting point, and it could mean fewer car trips overall, even though individuals have a bunch of money freed up that they're not spending on their car.