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Governmental competition in road charging and capacity choice

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  • Ubbels, Barry
  • Verhoef, Erik T.

Abstract

This paper studies policy interactions between an urban and a regional government, both controlling one link of a two-link serial road network, where regional drivers may use both roads and urban drivers use the urban road only. Both governments set capacity and toll on one link, in a two-stage game where tolls are set after capacities have been committed to, and try to maximize social surplus for their own population. We use a simulation model to investigate the welfare consequences of the various possible game-theoretical set-ups. We find that governmental competition may be rather harmful to aggregate social surplus, compared to first-best policies. The main determinant of social welfare is not which exact type of game is played between the two governments, but much more whether there is cooperation (leading to first-best) or competition between them. Only of secondary importance is the question who is leading in the price stage (if there is a leader). Sensitivity analysis suggests that the relative performance for most game situations improves when demand becomes more elastic, and remain insensitive with respect to the unit cost of capacity expansions.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 38 (2008)
Issue (Month): 2 (March)
Pages: 174-190

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Handle: RePEc:eee:regeco:v:38:y:2008:i:2:p:174-190

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References

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  1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1999. "Toll competition among congested roads," Documentos de Trabajo 54, Centro de Economía Aplicada, Universidad de Chile.
  2. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
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  4. 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.
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Citations

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Cited by:
  1. Bruno DE BORGER & Stefan PROOST, 2013. "The political economy of pricing and capacity decisions for congestible local public goods in a federal state," Center for Economic Studies - Discussion papers ces13.16, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. DE BORGER, Bruno & PROOST, Stef, 2012. "Policies to reduce traffic externalities in cities," Working Papers 2012013, University of Antwerp, Faculty of Applied Economics.
  3. Se-il Mun & Shintaro Nakagawa, 2008. "Pricing and investment of cross-border transport infrastructure," KIER Working Papers 661, Kyoto University, Institute of Economic Research.
  4. Erik T. Verhoef, 2007. "Private Roads," Tinbergen Institute Discussion Papers 07-093/3, Tinbergen Institute, revised 25 Jun 2008.
  5. Russo, Antonio, 2012. "Voting on Road Congestion Policy," TSE Working Papers 12-310, Toulouse School of Economics (TSE), revised Nov 2012.
  6. DE BORGER, Bruno & PROOST, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Working Papers 2012014, University of Antwerp, Faculty of Applied Economics.
  7. Gühnemann, Astrid & Koh, Andrew & Shepherd, Simon & Lawler, Mary, 2011. "Implications of interdependencies between charging strategies of local authorities for the protection of sensitive areas in the Trans-Pennine Corridor," Utilities Policy, Elsevier, vol. 19(1), pages 42-52, January.
  8. De Borger, Bruno & Proost, Stef, 2013. "Traffic externalities in cities: The economics of speed bumps, low emission zones and city bypasses," Journal of Urban Economics, Elsevier, vol. 76(C), pages 53-70.
  9. Bruno De Borger & Wilfried Pauwels, 2010. "A Nash bargaining solution to models of tax and investment competition: tolls and investment in serial transport corridors," Working Papers 2010/1, Institut d'Economia de Barcelona (IEB).
  10. Erik T. Verhoef, 2007. "Private Roads," Tinbergen Institute Discussion Papers 07-093/3, Tinbergen Institute, revised 25 Jun 2008.

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