Optimal Road Capacity with Hypercongestion in the Absence of Tolls

Abstract

In most urban areas, peak traffic volumes exceed the hypercongestion level at which traffic flow begins to decline in response to increases in density. It is an interesting and important question whether this situation reflects a chronic underinvestment in road capacity or whether outcomes of this nature may be socially optimal given the absence of congestion tolls. Previous analyses of optimal second-best capacity have either avoided the question or explicitly assumed that an optimal equilibrium point will not occur on the backward-bending portion of the average variable cost curve. See Wilson (1983), for example. This assumption may also arise implicitly where average variable cost is taken as a primitive concept and treated in the analysis as a strictly increasing function of road use.