The Full Economic Price of Legislation on ATM Fees
The legislative consideration to eliminate or reduce surcharges imposed by banks on noncustomers for ATM transactions is a topic of great importance across the United States. To understand the full economic price of such legislation, we need to consider various factors, including the number of transactions, the cost to banks, and the nonpecuniary costs to consumers.
According to the given information, noncustomers make 12 million withdrawals from other banks’ ATMs. They pay an average fee of $3.50 per transaction. The proposed legislation suggests a $1.50 cap on these fees, which implies that banks would need to maintain services for 4 million transactions at this price.
To determine the nonpecuniary cost of this legislation, we need to calculate the difference in desired and available transactions and then consider the time consumers would spend traveling to another machine for cash withdrawal.
The desired number of transactions at the proposed $1.50 fee is 19 million, while the available number of transactions at that price is only 4 million. Therefore, there is a gap of 15 million transactions.
The given information suggests that for every 1 million gap between desired and available transactions, a consumer would spend an additional minute traveling to another machine for cash withdrawal. Therefore, with a 15 million transaction gap, a typical consumer would spend an extra 15 minutes traveling to find an alternative ATM.
To calculate the nonpecuniary cost, we need to consider the average wage of noncustomers, which is $26 per hour. With an additional 15 minutes spent traveling, the nonpecuniary cost can be calculated as:
Nonpecuniary Cost = (Additional Time / 60) * Hourly Wage
Plugging in the values, we get:
Nonpecuniary Cost = (15 / 60) * $26 = $6.50
Therefore, the nonpecuniary cost of the proposed legislation would be $6.50.
Now, to determine the full economic price of this legislation, we need to consider both the pecuniary cost (the reduction in fees) and the nonpecuniary cost.
The pecuniary cost can be calculated by subtracting the reduced fee ($1.50) from the original fee ($3.50) and multiplying it by the number of transactions:
Pecuniary Cost = (Original Fee – Reduced Fee) * Number of Transactions
Plugging in the values, we get:
Pecuniary Cost = ($3.50 – $1.50) * 12 million = $24 million
Therefore, the pecuniary cost of the proposed legislation would be $24 million.
To calculate the full economic price, we need to add both the pecuniary and nonpecuniary costs:
Full Economic Price = Pecuniary Cost + Nonpecuniary Cost
Plugging in the values, we get:
Full Economic Price = $24 million + $6.50 = $24,000,006.50
Therefore, the full economic price of this legislation would be $24,000,006.50.
In conclusion, implementing legislation that places a $1.50 cap on fees banks can charge for noncustomer transactions would result in a full economic price of $24,000,006.50. This price includes both the pecuniary cost (reduction in fees) and the nonpecuniary cost (additional time spent by consumers traveling to alternative ATMs).
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