The Political Economy of Cordon Tolls

This paper studies the political economy of cordon tolls in a monocentric city consisting of three zones: center, mid-city and suburbs. The cordon toll may give rise to several interrelated conflicts: between residents within and outside the cordon, between car and public transport users, between the rich and the poor and, as the toll capitalizes into rents, between landowners and renters. These conflicts drive all our results. In the short-run, we assume the population is immobile and rents are fixed. With identical individuals, the toll then increases commuting costs only for those outside the cordon. Unless residents within the cordon are the majority, the equilibrium toll resulting from the political process is below the optimal level. Allowing for heterogeneous values of time, rich car commuters prefer a toll higher than socially optimal but, unless access costs to public transit are small, the poor majority prefers a toll below the optimum. When the toll capitalizes into land rents within the cordon, we show that only voters owning land in the center support it. In all scenarios, earmarking revenues for public transport mitigates the effect of the toll on commuting costs, raising voter support. Finally, we find that it is easier to get support for a cordon close to the center than for one further out in the suburbs. We illustrate our results using a calibrated model based on data for Milan.