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.     

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.     

The incidence of congestion and congestion tolls

In contrast with the enormous literature on efficiency aspects of congestion tolls, very little has appeared on their equity implications. Simulation is applied to a standard urban model to learn about the distributional aspects of an optimal toll, or the absence of one. Tolls are found to produce distributional changes which may overshadow their effects on allocative efficiency. In passing, the model is used to demonstrate that lagged supply adjustments to increases in the demand for suburban housing may be an effective, if second-best, alternative to congestion tolls.     

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.     

Regional Economic Impacts of Traffic Regulation on Tourism: The Case of Denmark

The paper presents an interregional computable general equilibrium model, LINE, which is used to analyze the regional economic effects of changes in road pricing as they affect and work though the Danish tourism sector. These effects include changes in demand, income and employment by region. The form of road pricing examined in the paper is tolls across a major fixed link. The consequences of changes in these substantial tolls are examined using the modeling framework. The basic modeling approach in LINE is presented, including its tourism sub-model, and empirical results for Denmark are examined.     

Road congestion: A reconsideration of pricing theory

In this paper, the effect of congestion tolls upon the pattern of traffic flows is examined. Congestion tolls influence the individual commuter's decision of when to make a trip, inducing him to travel at less congested times. When all commuters are taken together, congestion tolls and the individual consumers' decisions lead to an efficient reorganization of traffic flows relative to a non-toll situation. In fact, for the same total number of commuters, per person costs of travel including the toll may decline with the imposition of tolls and efficient reorganization of traffic flows.     

Congestion, Land Use, and Job Dispersion: A General Equilibrium Model

In dispersed cities, congestion tolls would drive up central wages and rents and would induce centrally located producers to want to disperse closer to their workers and their customers, paying lower rents and realizing productivity gains from land to labor substitution. But the tolls would also induce residents to want to locate more centrally in order to economize on commuting and shopping travel. In a computable general equilibrium model, we find that the centralizing effect of tolls on residences dominates on the decentralizing effect of tolls on firms, causing the dispersed city to have more centralized job and population densities. Under stylized parameters, we find that efficiency gains from levying congestion tolls on work and shopping travel are 3.0% of average income. About 80% of such gains come from road planning and 20% from tolls.     

Congestion Caused by Speed Differences

This paper investigates road traffic congestion caused by speed differences using both analytical and numerical simulation models. Especially outside peak hours, speed differences are probably one of the most important reasons for congestion. Some main conclusions are that optimal tolls for slow vehicles are higher than those for fast drivers, that the marginal external costs and the optimal tolls for slow drivers are actually decreasing in the equilibrium number of slow drivers, and that “platooning” may become an attractive option especially when the desire for a low speed is caused by a lower value of time.     

A generalized congestion function for highway travel

Urban planners designing the optimal scale and pricing of highway services must pay close attention to the choice of the functional form used to describe the relationship between highway speed and the volume of roadway traffic. This congestion relationship is a crucial empirical fact for planning. While past work have posited a variety of speed-volume models, no successful efforts have been made to statistically compare the different specifications. This paper presents a generalized congestion function (GCF) which allows us to select the preferred (by a maximum likelihood criterion) speed-volume specification. The most prominent previous speed-volume models are all shown to be special cases of GCF. Failure to use the GCF approach may be very costly. For example, in the design of highway tolls the switch from the optimal GCF specification to a statistically “second-best” model may lead to a consumer surplus loss of $1 million annually for a typical urban area.     

Clubs in an urban setting

In this paper the properties of a congestable concentrated local public good (CCoLPG) are described, taking into account both locational aspects and congestion. This discussion, therefore, completes the analysis of congestable local public goods (LPG) which was started in our earlier paper (Congestable local public goods in an urban setting, J. Urban Econ., 290–310 (1982). It is here shown that the optimal provision of CCoLPG leads to the creation of clubs, where the government has to determine the location and provide the optimal quantity of LPG in each club and also levy congestion tolls on users according to their level of utilization of the club. Congestion tolls cover the αest part of the costs, where α is the level of congestability of the CCoLPG. The rest of the costs are covered by taxing land rents. Clubs will form, possibly more than one per city, even if the LPG is pure (i.e., α = 0) and they will contain a single household if the LPG is private (i.e., α = 1). The difference between these results and those of classical club theorists stem from the fact that here we also take into account the limited supply of land of given accessibility (i.e., locational aspects), which like congestion lead to the creation of clubs. When these two factors are considered together, it explains why congestion tolls alone are not sufficient to finance clubs' operations, or why pure LPGs also have to be provided locally, etc.     

A behavioural model of traffic congestion: Endogenizing speed choice, traffic safety and time losses

Conventional economic models of traffic congestion assume that the relation between traffic flow and speed is a technical one. This paper develops a behavioural model of traffic congestion, in which drivers optimize their speeds by trading off time costs, expected accident costs and fuel costs. Since the presence of other drivers affects the latter two cost components and hence the Nash equilibrium speed, a ‘behavioural’ speed-flow relationship results for which external congestion costs include expected accident costs and fuel costs, in addition to the time costs considered in the conventional model. It is demonstrated that the latter in fact even cancel in the calculation of optimal congestion tolls. The overall welfare optimum in our model is found to be off the speed-flow function, and off the average and marginal cost functions derived from it in the conventional approach. This full optimum requires tolls to be either accompanied by speed policies, or to be set as a function of speed. Using an empirically calibrated numerical simulation model, we illustrate these qualitative findings, and attempt to assess their potential empirical relevance.     

The demand for computer services: A disaggregate decision model

Pricing schedules for computer resources have traditionally been based on ‘cost-recovery’ principles. While economists have begun to address pricing based on marginal congestion costs, most models take demand to be exogenous and given. Discrete alternatives are inadequately treated, and aggregation of data precludes any assessment of the impact of transaction size on consumers' decisions. Using disaggregated data, this paper derives empirical results confirming that consumers are strongly influenced by transaction sizes. Simulation experiments demonstrate that price incentives designed to modify the use of computer resources are considerably more effective if the distribution of demand is weighted towards large transactions.     

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.     

Highway congestion and congestion tolls

Highway congestion is ubiquitous. We model the speed-flow relationship, identifying private and social costs, and the implied congestion toll for a number of proposed formulations. Using data for a limited access highway, we estimate these speed-flow relationships and find that flow as a quadratic function of speed fits best. The unit of observation is the individual vehicle and flow is measured in terms of the vehicles which passed a point shortly before or after the reference vehicle. Maximum possible flow occurs at 30–35 mph and the congestion toll is infinite for slower speeds. Rush-hour drivers have greater speeds for a given volume of traffic and thus congestion tolls must vary by time of day.     

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.     

Optimum,market and second-best land use patterns in a von Thünen city with congestion

This paper constructs a von Thünen type model with traffic congestion and two production inputs. A comparison between optimum and market land use patterns is presented. The second-best problem in which congestion tolls are not allowed is also considered. The policy variable in the analysis is the allocation of land between production and transportation. The result is examined in a cost-benefit analysis based on market rent.     

Second-Best Congestion Pricing: The Case of an Untolled Alternative

This paper deals with second-best one-route congestion pricing in case of an untolled alternative. Using a two-link network simulation model, the effects of various demand and cost parameters on the relative efficiency of one-route tolling are analyzed. It is investigated whether the existence of costs of congestion charging may be a reason for one-route tolling to be more “overall efficient” than two-route tolling. Finally, the efficiency of revenue-maximizing one-route and two-route tolling is discussed.     

On revenue recycling and the welfare effects of second-best congestion pricing in a monocentric city

This paper examines congestion taxes in a monocentric city with pre-existing labor taxation. When road toll revenue is used to finance labor tax cuts, 35% of the optimal road tax in our numerical model does not reflect marginal external congestion costs, but rather functions as a Ramsey–Mirrlees tax, i.e. an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax. This adds a quite different motivation to road pricing, since welfare gains can be produced even in absence of congestion. We find that the optimal road tax is non-monotonic across space, reflecting the different impacts of labor supply elasticity and marginal utility of income, which both vary over space. The relative efficiencies of some archetype second-best pricing schemes (cordon toll, flat kilometer tax) are high (84% and 70% respectively). When road toll revenue is recycled lump-sum, the optimal toll lies below its Pigouvian level. Extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing.     

A theory of growth controls

A microeconomic model of individual decision-making that illustrates how growth controls might arise is developed. The emergence of growth controls is analyzed under a variety of assumptions about the local-governmental environment, including congestion effects, different cost conditions and pricing schemes for public services, and property-tax limitations. Some welfare consequences of growth controls are also presented.     

Nonlinear Pricing and Oligopoly

We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.