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A Discrete-Choice Model Approach to Optimal Congestion Change

Author

Listed:
  • Strøm, Steinar

    (University of Turin)

  • Vislie, Jon

    (Dept. of Economics, University of Oslo)

Abstract

We model the choice of transportation mode in a simplified Hotelling-like city, with a fixed number of total travellers, fixed road capacity and with no trade-off between when to travel and the time spent in a queue. A person that chooses to take her own car will inflict a congestion cost on all travellers. To get the travellers to internalise these external costs, a congestion charge has to be imposed. We derive an optimal congestion charge within in a discrete-choice framework, with a benevolent government maximising expected tax-adjusted social surplus. The congestion charge to be imposed on private driving, beyond the opportunity cost – equal to the fare on public transportation – is shown to be a weighted average of a Ramsey-like term (capturing the goal to raise public revenue) and a Pigou-term capturing the environmental cost of a person’s private driving. This property is similar to the optimal environmental tax derived by Sandmo (1975). However, the behavioural assumption underlying the present framework is quite different from the standard theory of consumer choice adopted by Sandmo.

Suggested Citation

  • Strøm, Steinar & Vislie, Jon, 2008. "A Discrete-Choice Model Approach to Optimal Congestion Change," Memorandum 09/2008, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2008_009
    as

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    File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2008/Memo-09-2008.pdf
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    References listed on IDEAS

    as
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    4. Sherman, Roger, 1971. "Congestion Interdependence and Urban Transit Fares," Econometrica, Econometric Society, vol. 39(3), pages 565-576, May.
    5. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    6. Newbery, David M, 1988. "Road Damage Externalities and Road User Charges," Econometrica, Econometric Society, vol. 56(2), pages 295-316, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Discrete choice; urban transport; congestion; congestion charges;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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