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Economic efficiency of second-best congestion pricing schemes in urban highway systems

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Author Info
Liu, Louie Nan
McDonald, John F.
Abstract

This paper examines urban highway congestion pricing in the instance in which it is not possible to levy a congestion toll on a major portion of the urban road system. This case is pertinent because of technical and/or political constraints. The paper uses economic theory of the second best and a simulation model to compare first-best, second-best and no-toll solutions for a model with two routes and two time periods (peak and pre-peak). The main findings from the simulation results are: (1) the second-best scheme is effective but less efficient than the first-best scheme in reallocating traffic volumes; (2) the second-best tolls are appreciably smaller than the first-best tolls; (3) the welfare gains from the second-best policy are much smaller than the welfare gains that are possible with a complete set of first-best tolls. It is also shown that the nature of the simulation results is not sensitive to reasonable cost and demand parameters.

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Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 33 (1999)
Issue (Month): 3 (April)
Pages: 157-188
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Handle: RePEc:eee:transb:v:33:y:1999:i:3:p:157-188

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  1. Marvin Kraus, 2002. "A New Look at the Two-Mode Problem," Boston College Working Papers in Economics 551, Boston College Department of Economics. [Downloadable!] (restricted)
    Other versions:
  2. Xuegang Ban & Henry Liu, 2009. "A Link-Node Discrete-Time Dynamic Second Best Toll Pricing Model with a Relaxation Solution Algorithm," Networks and Spatial Economics, Springer, vol. 9(2), pages 243-267, June. [Downloadable!] (restricted)
  3. Simon Shepherd, 2008. "The effect of complex models of externalities on estimated optimal tolls," Transportation, Springer, vol. 35(4), pages 559-577, July. [Downloadable!] (restricted)
  4. Erik T. Verhoef, 2000. "Second-Best Congestion Pricing in General Static Transportation Networks with Elastic Demands," Tinbergen Institute Discussion Papers 00-078/3, Tinbergen Institute. [Downloadable!]
    Other versions:
  5. Erik T. Verhoef, 2000. "Second-Best Congestion Pricing in General Networks - Algorithms for Finding Second-Best Optimal Toll Levels and Toll Points," Tinbergen Institute Discussion Papers 00-084/3, Tinbergen Institute. [Downloadable!]
  6. Lei Zhang & David Levinson & Shanjiang Zhu, 2007. "Agent-Based Model of Price Competition and Product Differentiation on Congested Networks," Working Papers 200809, University of Minnesota: Nexus Research Group. [Downloadable!]
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