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Price-Induced Distortions in Urban Highway Investment

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  • William C. Wheaton
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    Abstract

    This paper compares "first-best" highway investment when congestion pricing is in effect with "second-best" investment when such pricing is not used. The paper's main result is that as the pricing of roads falls below social costs, "second-best" investment expands to accommodate demand, but not by nearly so much as would be called for under first-best cost-benefit criteria. Under second-best investment, the level of time congestion is allowed to rise to compensate for the absence of monetary congestion pricing. There is some suggestion that overinvestment in American highways could have occurred from following first-best investment criteria when second-best criteria were appropriate.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 9 (1978)
    Issue (Month): 2 (Autumn)
    Pages: 622-632

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    Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:622-632

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    Cited by:
    1. Richard Arnott & Eren Inci, 2005. "An Integrated Model of Downtown Parking and Traffic Congestion," Boston College Working Papers in Economics 608, Boston College Department of Economics.
    2. Kraus, Marvin, 2003. "A new look at the two-mode problem," Journal of Urban Economics, Elsevier, vol. 54(3), pages 511-530, November.
    3. Richard Arnott & John Rowse, 2007. "Downtown Parking in Auto City," Boston College Working Papers in Economics 665, Boston College Department of Economics.
    4. Anas, Alex & Rhee, Hyok-Joo, 2006. "Curbing excess sprawl with congestion tolls and urban boundaries," Regional Science and Urban Economics, Elsevier, vol. 36(4), pages 510-541, July.
    5. 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.
    6. Richard Arnott & Elizaveta Shevyakhova, 2008. "Tenancy Rent Control And Credible Commitment In Maintenance," Working Papers 200812, University of California at Riverside, Department of Economics, revised Sep 2008.
    7. Yukihiro Kidokoro, 2008. "Revenue-recycling within Transport Networks," GRIPS Discussion Papers 08-07, National Graduate Institute for Policy Studies.
    8. Richard J. Arnott & Eren Inci & John Rowse, 2013. "Downtown Curbside Parking Capacity," CESifo Working Paper Series 4085, CESifo Group Munich.
    9. Erik T. Verhoef & Herbert Mohring, 2007. "Self-Financing Roads," Tinbergen Institute Discussion Papers 07-068/3, Tinbergen Institute.
    10. Arnott, Richard, 2007. "Congestion tolling with agglomeration externalities," Journal of Urban Economics, Elsevier, vol. 62(2), pages 187-203, September.
    11. Ingram, Gregory K. & Zhi Liu, 1997. "Motorization and the provision of roads in countries and cities," Policy Research Working Paper Series 1842, The World Bank.
    12. Conrad, Klaus, 1994. "Traffic, Transportation, Infrastructure and Externalities : a Theoretical Framework for a CGE Analysis," Discussion Papers 504, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    13. Romilly, Peter, 2004. "Welfare evaluation with a road capacity constraint," Transportation Research Part A: Policy and Practice, Elsevier, vol. 38(4), pages 287-303, May.
    14. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.

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