IDEAS home Printed from https://ideas.repec.org/a/eee/juecon/v66y2009i2p116-124.html
   My bibliography  Save this article

Optimal highway design and user welfare under value pricing

Author

Listed:
  • Light, Thomas

Abstract

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.

Suggested Citation

  • Light, Thomas, 2009. "Optimal highway design and user welfare under value pricing," Journal of Urban Economics, Elsevier, vol. 66(2), pages 116-124, September.
    • Handle: RePEc:eee:juecon:v:66:y:2009:i:2:p:116-124
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0094-1190(09)00031-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. MARCHAND, Maurice, 1968. "A note on optimal tolls in an imperfect environment," LIDAM Reprints CORE 22, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Edelson, Noel M, 1971. "Congestion Tolls Under Monopoly," American Economic Review, American Economic Association, vol. 61(5), pages 873-882, December.
    3. Liu, Louie Nan & McDonald, John F., 1998. "Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model," Journal of Urban Economics, Elsevier, vol. 44(3), pages 352-366, November.
    4. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," Journal of Urban Economics, Elsevier, vol. 49(2), pages 310-336, March.
    5. Braid, Ralph M., 1996. "Peak-Load Pricing of a Transportation Route with an Unpriced Substitute," Journal of Urban Economics, Elsevier, vol. 40(2), pages 179-197, September.
    6. 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.
    7. Erik T. Verhoef & Kenneth A. Small, 2004. "Product Differentiation on Roads," Journal of Transport Economics and Policy, University of Bath, vol. 38(1), pages 127-156, January.
    8. Helsley, Robert W. & Strange, William C., 1998. "Private government," Journal of Public Economics, Elsevier, vol. 69(2), pages 281-304, June.
    9. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-179, March.
    10. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
    11. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Uncovering the Distribution of Motorists' Preferences for Travel Time and Reliability," Econometrica, Econometric Society, vol. 73(4), pages 1367-1382, July.
    12. Richard Arnott & An Yan, 2000. "The Two-Mode Problem: Second-Best Pricing and Capacity," Boston College Working Papers in Economics 474, Boston College Department of Economics.
    13. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1992. "Route choice with heterogeneous drivers and group-specific congestion costs," Regional Science and Urban Economics, Elsevier, vol. 22(1), pages 71-102, March.
    14. de Palma, André & Kilani, Moez & Lindsey, Robin, 2008. "The merits of separating cars and trucks," Journal of Urban Economics, Elsevier, vol. 64(2), pages 340-361, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhao, Yunpeng & Song, Jinbo & Feng, Zhuo & Jin, Lulu, 2023. "Incentive contracts with demand guarantee in BOT toll road projects," Research in Transportation Economics, Elsevier, vol. 98(C).
    2. Nicholas Janusch & Stephan Kroll & Christopher Goemans & Todd L. Cherry & Steffen Kallbekken, 2021. "Learning to accept welfare-enhancing policies: an experimental investigation of congestion pricing," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 59-86, March.
    3. Paul Koster & Erik T. Verhoef & Simon Shepherd & David Watling, 2014. "Probabilistic Choice and Congestion Pricing with Heterogeneous Travellers and Price-Sensitive Demand," Tinbergen Institute Discussion Papers 14-078/VIII, Tinbergen Institute, revised 13 Nov 2014.
    4. Tan, Zhijia & Yang, Hai, 2012. "The impact of user heterogeneity on road franchising," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 958-975.
    5. Hall, Jonathan D., 2018. "Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways," Journal of Public Economics, Elsevier, vol. 158(C), pages 113-125.
    6. Meng, Qiang & Lu, Zhaoyang, 2017. "Quantitative analyses of highway franchising under build-operate-transfer scheme: Critical review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 102(C), pages 105-123.
    7. Light, Thomas, 2012. "High Occupancy Toll Lane Performance Under Alternative Pricing Policies," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 51(2).
    8. Zhang, Fangni & Yang, Hai & Liu, Wei, 2014. "The Downs–Thomson Paradox with responsive transit service," Transportation Research Part A: Policy and Practice, Elsevier, vol. 70(C), pages 244-263.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ubbels, Barry & Verhoef, Erik T., 2008. "Governmental competition in road charging and capacity choice," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 174-190, March.
    2. Kraus, Marvin, 2012. "Road pricing with optimal mass transit," Journal of Urban Economics, Elsevier, vol. 72(2), pages 81-86.
    3. Button, Kenneth, 2004. "1. The Rationale For Road Pricing: Standard Theory And Latest Advances," Research in Transportation Economics, Elsevier, vol. 9(1), pages 3-25, January.
    4. Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J. & Álvarez-SanJaime, Óscar, 2011. "Viability of new road infrastructure with heterogeneous users," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(5), pages 435-450, June.
    5. C. Robin Lindsey & Erik T. Verhoef, 2000. "Traffic Congestion and Congestion Pricing," Tinbergen Institute Discussion Papers 00-101/3, Tinbergen Institute.
    6. Pedro Cantos-Sanchez & Rafael Moner-Colonques & Jose J. Sempere-Monerris & Oscar Alvarez, 2008. "Viability of a New Road Infrastructure with Heterogeneous Users in Madrid Access," Working Papers 2008-06, FEDEA.
    7. Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J. & Álvarez-SanJaime, Óscar, 2009. "Alternative pricing regimes in interurban passenger transport with externalities and modal competition," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 128-137, March.
    8. Kraus, Marvin, 2003. "A new look at the two-mode problem," Journal of Urban Economics, Elsevier, vol. 54(3), pages 511-530, November.
    9. Kenneth Small, 2015. "The Bottleneck Model: An Assessment and Interpretation," Working Papers 141506, University of California-Irvine, Department of Economics.
    10. Button, Kenneth, 2020. "The Transition From Pigou’S Ideas On Road Pricing To Their Application," Journal of the History of Economic Thought, Cambridge University Press, vol. 42(3), pages 417-438, September.
    11. Fu, Xinying & van den Berg, Vincent A.C. & Verhoef, Erik T., 2018. "Private road networks with uncertain demand," Research in Transportation Economics, Elsevier, vol. 70(C), pages 57-68.
    12. Erik T. Verhoef & Kenneth A. Small, 1999. "Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," Tinbergen Institute Discussion Papers 99-066/3, Tinbergen Institute.
    13. De Borger, Bruno & Proost, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Economics of Transportation, Elsevier, vol. 1(1), pages 35-48.
    14. Small, Kenneth A., 2015. "The bottleneck model: An assessment and interpretation," Economics of Transportation, Elsevier, vol. 4(1), pages 110-117.
    15. Koster, Paul & Verhoef, Erik & Shepherd, Simon & Watling, David, 2018. "Preference heterogeneity and congestion pricing: The two route case revisited," Transportation Research Part B: Methodological, Elsevier, vol. 117(PA), pages 137-157.
    16. Paul Koster & Erik T. Verhoef & Simon Shepherd & David Watling, 2014. "Probabilistic Choice and Congestion Pricing with Heterogeneous Travellers and Price-Sensitive Demand," Tinbergen Institute Discussion Papers 14-078/VIII, Tinbergen Institute, revised 13 Nov 2014.
    17. Fu, Xinying & van den Berg, Vincent A.C. & Verhoef, Erik T., 2018. "Private road supply in networks with heterogeneous users," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 430-443.
    18. Georgina Santos & Erik Verhoef, 2011. "Road Congestion Pricing," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 23, Edward Elgar Publishing.
    19. Ian W.H. Parry, 2009. "Pricing Urban Congestion," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 461-484, September.
    20. Hideo Konishi, 2004. "Uniqueness of User Equilibrium in Transportation Networks with Heterogeneous Commuters," Transportation Science, INFORMS, vol. 38(3), pages 315-330, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:juecon:v:66:y:2009:i:2:p:116-124. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622905 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.