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Responses to complex pricing signals: Theory, evidence and implications for road pricing

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  • Bonsall, Peter
  • Shires, Jeremy
  • Maule, John
  • Matthews, Bryan
  • Beale, Jo
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    Abstract

    There is a potential tension between the theoretical desirability of highly differentiated tariff structures and the ability of consumers to respond effectively to them. Evidence from studies of road pricing schemes and tolls, from other transport modes, and from other industries (notably telecommunications), is reviewed and its transferability assessed. Relevant models of human decision making (notably Prospect Theory, Risk Aversion, Ambiguity Avoidance and Bounded Rationality) are explored, and the use and efficiency of heuristics to deal with complex situations is discussed. It is concluded that people have a strong preference for simple tariffs but that they are able to respond to quite complex tariffs provided that they have a clear and logical structure. However, people's difficulties in estimating distance will severely limit the accuracy of their estimates of distance-based charges and their response to complex pricing signals will be influenced by their attitude to the fairness of the charge. These conclusions are summarised in a general model of response to complex prices. The paper, which reports and extends a study conducted for the UK Department for Transport, concludes by considering the implications for the design and performance of road pricing schemes (an inherent problem being that the theoretically optimum, first-best, pricing structure might be so complicated and dynamically variable that it would be unreasonable to expect road users to predict, let alone respond to, the prices on any given road at any given time - a simpler pricing structure might therefore yield a better overall result).

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 41 (2007)
    Issue (Month): 7 (August)
    Pages: 672-683

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    Handle: RePEc:eee:transa:v:41:y:2007:i:7:p:672-683

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    References

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    Cited by:
    1. Beck, Matthew J. & Rose, John M. & Hensher, David A., 2013. "Consistently inconsistent: The role of certainty, acceptability and scale in choice," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 56(C), pages 81-93.
    2. Ben-Elia, Eran & Ettema, Dick, 2011. "Rewarding rush-hour avoidance: A study of commuters' travel behavior," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(7), pages 567-582, August.
    3. Tillema, Taede & Ben-Elia, Eran & Ettema, Dick & van Delden, Janet, 2013. "Charging versus rewarding: A comparison of road-pricing and rewarding peak avoidance in the Netherlands," Transport Policy, Elsevier, vol. 26(C), pages 4-14.
    4. Madas, Michael A. & Zografos, Konstantinos G., 2008. "Airport capacity vs. demand: Mismatch or mismanagement?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(1), pages 203-226, January.
    5. Lindsey, Robin, 2011. "State-dependent congestion pricing with reference-dependent preferences," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1501-1526.
    6. Xie, Litian & Olszewski, Piotr, 2011. "Modelling the effects of road pricing on traffic using ERP traffic data," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(6), pages 512-522, July.
    7. Gaker, David & Zheng, Yanding & Walker, Joan, 2010. "Experimental Economics in Transportation: A Focus on Social Influences and the Provision of Information," University of California Transportation Center, Working Papers qt7vg9m3r1, University of California Transportation Center.
    8. Wang, Judith Y.T. & Lindsey, Robin & Yang, Hai, 2011. "Nonlinear pricing on private roads with congestion and toll collection costs," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 9-40, January.
    9. Eliasson, Jonas & Jonsson, Lina, 2011. "The unexpected "yes": Explanatory factors behind the positive attitudes to congestion charges in Stockholm," Transport Policy, Elsevier, vol. 18(4), pages 636-647, August.
    10. De Leon, Marycruz & Fullerton, Thomas M., Jr. & Kelley, Brian W., 2009. "Tolls, Exchange Rates, and Borderplex International Bridge Traffic," MPRA Paper 19861, University Library of Munich, Germany.
    11. Nie, Yu (Marco) & Yin, Yafeng, 2013. "Managing rush hour travel choices with tradable credit scheme," Transportation Research Part B: Methodological, Elsevier, vol. 50(C), pages 1-19.
    12. Winslott-Hiselius, Lena & Brundell-Freij, Karin & Vagland, Asa & Byström, Camilla, 2009. "The development of public attitudes towards the Stockholm congestion trial," Transportation Research Part A: Policy and Practice, Elsevier, vol. 43(3), pages 269-282, March.
    13. Jou, Rong-Chang & Yeh, Yi-Chun, 2013. "Freeway passenger car drivers' travel choice behaviour in a distance-based toll system," Transport Policy, Elsevier, vol. 27(C), pages 11-19.
    14. Eliasson, Jonas, 2008. "Lessons from the Stockholm congestion charging trial," Transport Policy, Elsevier, vol. 15(6), pages 395-404, November.
    15. Lindsey, Robin, 2009. "Cost recovery from congestion tolls with random capacity and demand," Journal of Urban Economics, Elsevier, vol. 66(1), pages 16-24, July.
    16. Xu, Hongli & Lou, Yingyan & Yin, Yafeng & Zhou, Jing, 2011. "A prospect-based user equilibrium model with endogenous reference points and its application in congestion pricing," Transportation Research Part B: Methodological, Elsevier, vol. 45(2), pages 311-328, February.
    17. Chu, Chih-Peng & Tsai, Jyh-Fa, 2008. "The optimal location and road pricing for an elevated road in a corridor," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(5), pages 842-856, June.
    18. Cools, Mario & Brijs, Kris & Tormans, Hans & Moons, Elke & Janssens, Davy & Wets, Geert, 2011. "The socio-cognitive links between road pricing acceptability and changes in travel-behavior," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(8), pages 779-788, October.
    19. André De Palma & Robin Lindsey, 2009. "Traffic Congestion Pricing Methods and Technologies," Working Papers hal-00414526, HAL.
    20. 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.

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