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Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways

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  • Hall, Jonathan D.

Abstract

Though economists have long advocated road pricing as an efficiency-enhancing solution to traffic congestion, it has rarely been implemented, primarily because it is thought to create losers as well as winners. This paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a Pareto improvement before using the revenue, a sufficient condition being that drivers with a high value of time travel at the peak of rush hour. I obtain these new theoretical results by extending a standard dynamic congestion model to reflect an important additional traffic externality: extra traffic does not simply increase travel times, but also introduces frictions that reduce throughput. The analysis draws attention to a practical policy that may help overcome the widespread opposition to road pricing.

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  • 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.
    • Handle: RePEc:eee:pubeco:v:158:y:2018:i:c:p:113-125
    DOI: 10.1016/j.jpubeco.2018.01.003
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    More about this item

    Keywords

    Congestion pricing; Pareto improvement; Value pricing; Externality; Hypercongestion; Sufficient condition;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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