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A two-route Ramsey pricing problem: second-best congestion pricing with an untolled alternative and a revenue constraint

Author

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  • Seiji Steimetz

    (California State University, Long Beach)

Abstract

This paper derives a second-best congestion toll for when two congestible facilities are perfect substitutes, but only one facility can be priced, and where a minimum amount of toll revenue must be generated. It is shown that the resulting, second-best toll equals a weighted average of the social planner's optimal toll and the profit-maximizing toll of a private monopolist, with the shadow price of the revenue constraint serving as the weight. As the revenue constraint is relaxed, the social planner's toll becomes more efficient. But when the revenue constraint becomes more difficult to satisfy, monopoly pricing becomes more efficient.

Suggested Citation

  • Seiji Steimetz, 2015. "A two-route Ramsey pricing problem: second-best congestion pricing with an untolled alternative and a revenue constraint," Economics Bulletin, AccessEcon, vol. 35(4), pages 2535-2542.
    • Handle: RePEc:ebl:ecbull:eb-15-00610
    as

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    References listed on IDEAS

    as
    1. Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November.
    2. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
    3. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    4. de Palma, André & Lindsey, Robin & Proost, Stef, 2007. "Chapter 1 Investment and the use of tax and toll revenues in the transport sector: The research agenda," Research in Transportation Economics, Elsevier, vol. 19(1), pages 1-26, January.
    5. repec:bla:scandj:v:103:y:2001:i:4:p:645-71 is not listed on IDEAS
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    More about this item

    Keywords

    congestion pricing; Ramsey pricing; second-best pricing; externalities;
    All these keywords.

    JEL classification:

    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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