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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. 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.
    2. 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.

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