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The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation

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  • Small, Kenneth A.
  • Yan, Jia

Abstract

Some road-pricing demonstrations use “value pricing,” in which travelers can choose between a free but congested roadway and a priced roadway. Recent research has uncovered a potentially serious problem for such demonstrations, second-best tolls may be far lower than those typically charged, and from a welfare perspective, the latter may be worse than not pricing at all. That research, however, assumes that all travelers are identical and it therefore neglects the benefits of product differentiation. Using a model with two user groups, we find that accounting for heterogeneity in value of time as important in evaluating constrained policies, and improves the relative performance of policies that offer differential prices.

Suggested Citation

  • Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
    • Handle: RePEc:cdl:uctcwp:qt9569k1sz
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    References listed on IDEAS

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