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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. Arnott, Richard, 2007. "Congestion tolling with agglomeration externalities," Journal of Urban Economics, Elsevier, vol. 62(2), pages 187-203, September.
    2. Marvin Kraus, 2002. "A New Look at the Two-Mode Problem," Boston College Working Papers in Economics 551, Boston College Department of Economics.
    3. Richard Arnott & Elizaveta Shevyakhova, 2007. "Tenancy Rent Control and Credible Commitment in Maintenance," Boston College Working Papers in Economics 661, Boston College Department of Economics.
    4. 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.
    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. Arnott, Richard & Rowse, John, 2009. "Downtown parking in auto city," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 1-14, January.
    7. 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.
    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.

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