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Road pricing with complications

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Abstract

The rationale for congestion charges is that by internalising the marginal external congestion cost, they restore efficiency in the transport market. In the canonical model underlying this view, congestion is a static phenomenon, users are taken to be homogenous, there is no travel time risk, and a highly stylised model of congestion is used. The simple analysis also ignores that real pricing schemes are only rough approximations to ideal systems and that inefficiencies in related markets potentially affect the case for congestion charges. The canonical model tends to understate the marginal external congestion cost because it ignores user heterogeneity and trip timing inefficiencies. With respect to the relevance of interactions between congestion and congestion charges and tax distortions and distributional concerns, recent insights point out that there is no general case for modifying charges for such interactions. Therefore the simple Pigouvian rule remains a good first approximation for the design of road charging systems.

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Notes

  1. This is true in a first-best world, where all other prices equal marginal social cost.

  2. This is also true in a first-best world.

  3. Net benefits also depend on implementation costs. We do not discuss those in this paper, but emerging evidence suggests these costs are high—if the main issue is to raise revenue then cheaper ways of doing so exist (OECD 2010).

  4. Other monetary travel costs are ignored.

  5. De Palma and Fosgerau (2011) develops the bottleneck model under more general scheduling preferences.

  6. A recent paper (Cassidy et al. 2010) indicates that special lanes such as car pool lanes can increase effective road capacity, because they reduce disruptive vehicle lane changing. Even a severely underused carpool lane can in some instances increase a freeway bottleneck's total discharge flow. A theoretical investigation of these issues is undertaken in Menendez and Daganzo (2007).

  7. This may sound easier than it is. Fosgerau (2006) discusses issues related to the identification of the distribution of VTT. De Borger and Fosgerau (2008) discuss extensions to take behavioral anomalies into account.

  8. The estimate is computed using a nonparametric technique, which does not impose the restriction that the cumulative distribution should be increasing. It is therefore evidence of the internal validity of the SP data that an increasing function does result.

  9. Arnott et al. (1994), discuss pricing with heterogeneous travellers in the context of the bottleneck model. Arnott and Kraus (1998) discuss marginal cost pricing when travellers are heterogeneous but the differences are not observed.

  10. This could be regarded as a case of product differentiation (Mas-Colell et al. 1995), since the outcome is that the parts of the road deliver different travel times. In contrast to most goods, the service quality of roads depends strongly on usage.

  11. This pattern is generated by the random capacity bottleneck model for any distribution of capacity (Fosgerau 2010).

  12. The scale or statistical dispersion of a distribution indicates how “spread out” it is. .

  13. Previously, this had been shown for some special cases (Noland and Small 1995; Bates et al. 2001).

  14. Travel times are not likely to be independent since delays on different links may have common causes. Still, additivity must be considered an improvement over no additivity.

  15. There are cases where equilibrium effects imply that imperfect information is not necessarily welfare improving (Arnott et al. 1999).

  16. Or whatever turns out to be the optimal charge.

  17. Perhaps with allowance for imperfections in the wider economy.

  18. In contrast to the Kaplow approach, the Kaldor–Hicks argument does not require a social welfare function. But as no social welfare function would reject a Pareto-improvement, the views are consistent.

  19. We criticized the same paper in the previous section for its reliance on income tax restrictions that strongly affect results. That issue is separate from the consideration of the general modelling strategy considered here. Whether the complex rule is correct or not is obviously important, but here the question is whether the complexity itself is worthwhile.

  20. The evolving insight on the relevance of other distortions, discussed in Sect. 7.2, and the conceptual and empirical uncertainty on the size and nature of agglomeration economies can serve as examples.

  21. Richard Arnott (1998) distinguishes between model-based and model-assisted reasoning, where the latter refers to the use of models to illuminate a broader argument, and the former is where the model is the argument.

  22. Engelson et al. (2012) compare the models METROPOLIS (de Palma et al. 1997) and SILVESTER (Kristoffersson and Engelson 2009) in an ex post study of the Stockholm congestion charge. METROPOLIS handles dynamics, trip timing and heterogeneity, while SILVESTER also goes some way to take travel time variability into account. Both models provide significant improvement in realism over static models.

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Acknowledgments

We are grateful to Ken Small and two referees for many valuable comments on earlier versions of this paper. Errors and shortcomings are ours. Views expressed are the authors’ and not necessarily those of the institutions they are affiliated with. This paper updates and extends some of the material discussed in Fosgerau and Van Dender (2010).

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Authors and Affiliations

  1. DTU Transport, Lyngby, Denmark

    Mogens Fosgerau

  2. Centre for Transport Studies, Stockholm, Sweden

    Mogens Fosgerau

  3. Joint Transport Research Centre of the International Transport Forum and the OECD, 2 Rue André Pascal, 75755, Paris Cedex 16, France

    Kurt Van Dender

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  1. Mogens Fosgerau
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  2. Kurt Van Dender
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Correspondence to Kurt Van Dender.

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Fosgerau, M., Van Dender, K. Road pricing with complications. Transportation 40, 479–503 (2013). https://doi.org/10.1007/s11116-012-9442-5

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