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Give or take? Rewards versus charges for a congested bottleneck

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  • Rouwendal, Jan
  • Verhoef, Erik T.
  • Knockaert, Jasper

Abstract

This paper analyzes the possibilities to relieve traffic congestion using subsidies instead of Pigouvian taxes, as well as revenue-neutral combinations of rewards and taxes (‘feebates’). The model considers a Vickrey–ADL model of bottleneck congestion with endogenous scheduling. With inelastic demand, a fine (time-varying) reward is found to be equivalent to a fine toll, and to a continuum of combinations of time-varying tolls and rewards, including fine feebates. When demand is price-sensitive, a reward becomes less attractive from the efficiency viewpoint, because it attracts additional users to the congested bottleneck. As a result, both the second-best optimal fraction of rewarded travelers in the scheme, and the relative efficiency that can be achieved with it, decrease when demand becomes more elastic. Our analytical and simulation results for coarse schemes reveal that a coarse reward is less effective than a coarse feebate, which is itself less effective than a coarse toll. The most efficient coarse system is the step toll, which is also allowed to be positive in the fringes of the peak. Despite the smaller efficiency gains, rewards and feebates may be attractive to use in circumstances where public and political acceptability of tolling is especially low, so that its implementation is unlikely, including the temporary use of price incentives in case of road works and large-scale events.

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Bibliographic Info

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

Volume (Year): 42 (2012)
Issue (Month): 1-2 ()
Pages: 166-176

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Handle: RePEc:eee:regeco:v:42:y:2012:i:1:p:166-176

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Web page: http://www.elsevier.com/locate/regec

Related research

Keywords: Traffic congestion; Road pricing; Subsidies; Rewards; Bottleneck model;

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References

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  1. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-79, June.
  2. Richard Arnott & Andre de Palma & Robin Lindsey, 1985. "Economics of a Bottleneck," Working Papers 636, Queen's University, Department of Economics.
  3. Bliemer, Michiel C.J. & van Amelsfort, Dirk H., 2010. "Rewarding instead of charging road users: a model case study investigating effects on traffic conditions," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 44, pages 23-40.
  4. E Verhoef & P Nijkamp & P Rietveld, 1997. "Tradeable permits: their potential in the regulation of road transport externalities," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 24(4), pages 527-548, July.
  5. Daganzo, Carlos F., 1995. "A pareto optimum congestion reduction scheme," Transportation Research Part B: Methodological, Elsevier, vol. 29(2), pages 139-154, April.
  6. Braid, Ralph M., 1996. "Peak-Load Pricing of a Transportation Route with an Unpriced Substitute," Journal of Urban Economics, Elsevier, vol. 40(2), pages 179-197, September.
  7. Laih, Chen-Hsiu, 1994. "Queueing at a bottleneck with single- and multi-step tolls," Transportation Research Part A: Policy and Practice, Elsevier, vol. 28(3), pages 197-208, May.
  8. Chu, Xuehao, 1999. "Alternative congestion pricing schedules," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 697-722, November.
  9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May.
  10. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-79, March.
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