A political economy model of road pricing

In this paper, we use a simple majority voting model to study the introduction of urban congestion tolls. The model allows for different types of uncertainty and considers different uses of the toll revenues. The following results are obtained. First, we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante, although a majority would have been in favor after its introduction ex post. Moreover, if a majority is against road pricing ex ante, there will also be no majority for organizing an experiment that would take away the individual uncertainty. Second, political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls. Third, both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters. Importantly, the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing, including the systematic rejection of road pricing in referenda, the more favorable attitudes towards road pricing after than before its introduction, and tying the toll revenues to support public transport.     

Voting on road congestion policy

This paper studies the political economy of urban traffic policy. A city council and a regional government (representing city and suburbs) decide respectively on parking fees and a road toll. Both charges are below the optimum when median voters in city and suburbs prefer cars to public transport sufficiently more than the average. Even if the city government would set an optimal road toll, the regional government blocks it when the median suburban voter prefers cars strongly enough. Letting the city control parking and road pricing may therefore increase chances of adoption of the latter. However, if the city controls parking and the region road pricing, the combined charges are higher than if the city controlled them both. Hence, when voters want all charges below the optimum, the involvement of two governments may be desirable. We also find that earmarking road pricing revenues for public transport is welfare-enhancing, compared to lump-sum redistribution, only if they are topped up by extra funds granted to the city by a higher level of government.     

The incidence of congestion tolls on urban highways

The incidence of an optimal short-run congestion toll is investigated using an equilibrium model of modal choice and congestion on a highway corridor served by express bus transit. It is argued that for an externality tax the usual equi-revenue analysis of burdens is inappropriate; instead, welfare effects are computed under three alternative assumptions about redistribution of toll revenues. In almost all cases the net result is benefits for all income groups. It is concluded that congestion tolls should not be rejected on grounds of income distribution, but that an explicit package of tolls and revenue uses is probably a political prerequisite for adoption.     

Optimal policies in cities with congestion and agglomeration externalities: Congestion tolls,labor subsidies,and place-based strategies

This paper develops a spatial general equilibrium model that accommodates both congestion and agglomeration externalities, while firms’ and households’ land-use decisions are endogenous across continuous space. Focusing on the interaction between externalities and land use patterns, we examine the efficiencies of first-best policies and second-best pricing and place-based strategies using numerical simulations. A first-best policy must combine both Pigouvian congestion tolling (PCT) and Pigouvian labor subsidies (PLS) instruments, or design an optimal toll (or subsidy) internalizing agglomeration externalities (or congestion externalities). We also examine second-best pricing policies if only one instrument is adopted. Congestion pricing policies alone (e.g., a partial PCT or a flat-rate toll) can improve social welfare only in heavy-congestion cities, and their welfare gains may be insignificant (e.g., below 10% of the welfare improvement achieved by first-best policies). In contrast, second-best labor subsidy policies alone are a more effective alternative to first-best policies. As to place-based policies, the firm cluster zoning (FCZ) regulation is more efficient than the urban growth boundary (UGB) policy. UGBs only have small effects on the agglomeration economy but could worsen land market distortions via residential rent-escalation effects. These findings suggest that it is important to internalize business land use decisions and relax monocentricity assumptions, in order to appreciate the interplay of both urban externalities, since spatial adaptations to policy interventions can distort system efficiencies.     

Optimal road capacity in the presence of unpriced congestion

This paper studies how the optimal capacity of a road is affected by a pricing constraint which keeps the toll fixed below its optimal value. The answer is found to depend on the value of the price elasticity of travel demand at the second-best optimum. The pricing constraint lowers the optimal capacity, if the price elasticity is sufficiently high. But under reasonable assumptions, the pricing constraint raises the optimal capacity, if the price elasticity is less than the ratio of the consumer price of travel to the private congestion cost at the second-best optimum. This ratio cannot be less than one.     

Financing Capacity in the Bottleneck Model

It is well known that, for a congestible facility with constant long-run average cost, the revenue from the unconstrained optimal congestion charge (set so that each individual faces the marginal (social) cost of a use) exactly covers the cost of optimal capacity. In the context of Vickrey′s bottleneck model of morning rush-hour auto congestion, this paper investigates under what circumstances the first-best pricing and investment rules apply when both the time variation of the congestion charge is constrained and users differ in unobservable characteristics so that the same congestion charge must be applied to heterogeneous users.     

A bathtub model of downtown traffic congestion

In standard economic models of traffic congestion, traffic flow does not fall under heavily congested conditions. But this is counter to experience, especially in the downtown areas of major cities during rush hour. This paper analyzes a bathtub model of downtown rush-hour traffic congestion that builds on ideas put forward by William Vickrey. Water flowing into the bathtub corresponds to cars entering the traffic stream, water flowing out of the bathtub to cars exiting from it, and the height of water in the bathtub to traffic density. Velocity is negatively related to density, and outflow is proportional to the product of density and velocity. Above a critical density, outflow falls as density increases (traffic jam situations). When demand is high relative to capacity, applying an optimal time-varying toll generates benefits that may be considerably larger than those obtained from standard models and that exceed the toll revenue collected.     

Open spaces,revenue sharing,and urban structure

Open spaces and revenue sharing are analyzed within an urban-spatial framework. When households do not observe the price of the public good directly and because of the external economy arising from city size, the local government cannot determine the optimal property tax rate from empirical observation of consumer behavior. The relation between the property tax rate and city size is indeterminate. When land is necessary for public good production, there is an optimal amount of revenue sharing. The property tax rate alone, only under exceptional circumstances, can be used to limit city size and the amount of land in housing production.     

Transport tax reform, commuting, and endogenous values of time

We consider a model of urban transport with two trip purposes, commuting (assumed perfectly complementary to labour supply) and noncommuting, to analyse the effects of transport tax reform on the value of time and marginal external congestion costs. Higher commuting taxes plausibly reduce time values, but higher noncommuting transport prices will typically raise the value of time. The intuition for this latter finding is that the reduction in congestion that follows from the tax increase itself raises net wages per hour of work (inclusive of commuting time). Empirical illustrations with Belgian data show a potentially large effect of transport tax reform on time values. In quite a few of the tax reforms studied traffic levels are reduced, but the increase in time values implies that marginal external congestion costs actually increase.     

Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model

This paper develops a congestion pricing model to examine efficient congestion tolls for an urban highway facility that resembles California State Route 91, the highway that has been subject to congestion tolls since December 27, 1995. Two lanes out of six (each way) are subject to congestion tolls, and the other four lanes are not. The simulation model combines the economic theories of second-best pricing of transportation facilities and peak-load pricing, and considers both welfare-maximizing and profit-maximizing cases. The simulation results show that the second-best peak period toll is quite low and that the welfare gains from the toll are modest compared to a regime in which all lanes are subject to tolls.     

Peak-Load Pricing of a Bottleneck with Traffic Jam

This paper generalizes the model of bottleneck congestion such that formation and development of traffic jams is explicitly formulated. The model is applied to the peak-load problem for the morning rush hour: every morning, a fixed number of commuters travel across a roadway, and each of them chooses departure time to minimize commuting cost consisting of travel time cost, scheduling cost, and toll. Equilibrium and optimal patterns of departure are solved and optimal peak-load toll is derived. Incorporating traffic jams alters the earlier results in the literature. That is, road users may be better off from paying the optimal peak-load toll. Conditions under which such a result is obtained are identified by simulations.     

Electronic Road Pricing for Public Transport

It is increasingly recognised that some form of rationing of congested road space is urgently required. Electronic road pricing would lead to a more rational use of private and public transport, and would influence the development of our towns and cities in the future.     

Tax Policy Coordination, Vertical Externalities, and Optimal Taxation in a System of Hierarchical Governments

Tax policies of two levels of government (state and federal) with overlapping tax bases are considered. This overlap leads to “vertical” fiscal externalities are considered when several different commodities are in the tax base and the tax bases of the two levels of government may not be identical. When the governments share a tax base, the mix of combined taxes is optimal. With different tax bases, combined taxes are no longer optimal as federal tax rates are adjusted to reflect state public service levels. When grants are available, a welfare-maximizing mix of taxes and public services is obtained.     

Multi-region Development and Fiscal Equity

A bstract . If a region has a fixed resource base (say land) then adding labor eventually results in a declining marginal product per worker. If there is a pure Samuelsonian public good in the region, more people permit the spreading of the tax burden for producing the public good at no cost in terms of crowding the good. Thus we have an essential trade-off between the declining marginal productivity of an immigrant to a region and his positive fiscal "value." This trade-off was highlighted by Flatters, Henderson and Mieszkowski¹ and an optimal population was arrived at for a single region economy. We extend this optimal population argument to a multi-region economy and observe two phenomena.     

Inside the queue:: hypercongestion and road pricing in a continuous time–continuous place model of traffic congestion

This paper develops a continuous-time–continuous-place dynamic economic model of traffic congestion, based on car-following theory. The model integrates two archetype congestion technologies used in the economics literature: ‘static flow congestion’ and ‘dynamic bottleneck congestion.’ With endogenous departure times and a bottleneck along the route, ‘hypercongestion’ arises as a dynamic equilibrium phenomenon on the upstream road segment. Congestion tolls based on an intuitive dynamic and space-varying generalization of the standard Pigouvian tax rule can hardly be improved upon. A naïve application of a toll schedule based on Vickrey's bottleneck model performs much worse and reduces welfare in the numerical model.     

Optimal highway design and user welfare under value pricing

This paper investigates the optimal design of highways operated under a form of congestion pricing called value pricing. Value pricing involves dividing a highway into free and priced lanes so that in equilibrium the highway effectively operates at two levels of service, with those users placing a higher value on travel time savings selecting the faster, priced route. A tractable analytical framework is developed which allows analysis of equilibrium and welfare on value priced highways when users vary in their value of time. The model is used to characterize optimal toll and capacity policies, as well as investigate the fiscal implications of value pricing. The analysis concludes with results on how welfare changes induced by value pricing are distributed over the population of users when the government finances any funding shortfall through a non-discriminatory taxing mechanism. A realistic numeric example is used to illustrate how the model can be applied to evaluation of actual and proposed value pricing implementations.     

Does public transit reduce car travel externalities? Quasi-natural experiments' evidence from transit strikes

One of the unanswered questions in the field of urban economics is to which extent subsidies to public transit are justified. We examine one of the main benefits of public transit, a reduction in car congestion externalities, the so-called congestion relief benefit, using quasi-natural experimental data on citywide public transit strikes for Rotterdam, a city with mild congestion levels. On weekdays, a strike induces travel times to increase only marginally on the highway ring road (0.017 min/km) but substantially on inner city roads (0.224 min/km). During rush hour, the strike effect is much more pronounced. The congestion relief benefit of public transit is substantial, equivalent to about 80% of the public transit subsidy. We demonstrate that during weekends, travel time does not change noticeably due to strikes. Furthermore, we show that public transit strikes induce similar increases in number of cyclists as number of car travelers suggesting that bicycling-promoting policies to reduce car congestion externalities might be attractive in combination with first-best congestion pricing.     

The paradox of inelastic sports pricing

Rodney Fort's (2004) article in Managerial and Decision Economics attempts to explain the recurrent phenomenon of inelastic ticket pricing in professional sports. In his explanation, Fort mistakenly substitutes the marginal revenue generated by the acquisition of talent for the marginal revenue generated by lowering the gate ticket price. This article corrects the mistake, pointing out that inelastic ticket pricing is still inconsistent with profit maximization. In addition, it is demonstrated that the marginal revenue generated by additional talent cannot be negative. Copyright © 2007 John Wiley & Sons, Ltd.     

Bottleneck Congestion and Modal Split

This paper analyzes commuting congestion when there is mass transit parallel to a road with a bottleneck between a residential area and a workplace. We investigate the optimality and efficiency of several railroad fare and road toll regimes and provide practical rules for attaining the social optimum. A welfare comparison is also made between these regimes, and it is shown that the road tolls are effective especially in the case of heavy road congestion.     

Airlines’ strategic interactions and airport pricing in a dynamic bottleneck model of congestion

This paper analyzes efficient pricing at a congested airport dominated by a single firm. Unlike much of the previous literature, we combine a dynamic bottleneck model of congestion and a vertical structure model that explicitly considers the role of airlines and passengers. We show that a Stackelberg leader interacting with a competitive fringe partially internalizes congestion, and that there are various toll regimes that induce the welfare maximizing outcome, widening the set of choices for regulators. In particular, charging the congestion toll that would apply for fully competitive carriers and that ignores any internalization, to both the leader and the fringe, yields the first-best outcome.