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The Two-Mode Problem: Second-Best Pricing and Capacity

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Author Info
Richard Arnott () (Boston College)
An Yan () (Boston College)

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Abstract

Suppose that there are two congestible modes of travel from A to B - road and rail for concreteness - which are imperfect substitutes in demand. Road congestion from A to B is underpriced; this is an unalterable distortion. Compared to the first best, should the transportation planner choose a wider or narrower road, raise or lower the rail fare, and expand or contract rail capacity? This paper provides a synthetic review of the literature on the problem, presents some new results, and discusses directions for future research on this and related second-best problems.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 474.

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Length: 40 pages
Date of creation: 29 Sep 2000
Date of revision:
Handle: RePEc:boc:bocoec:474

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Related research
Keywords: second-best; pricing; investement; road; rail;

Other versions of this item:

Find related papers by JEL classification:
R41 - Urban, Rural, and Regional Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion
R42 - Urban, Rural, and Regional Economics - - Transportation Systems - - - Government and Private Investment Analysis
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William C. Wheaton, 1978. "Price-Induced Distortions in Urban Highway Investment," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 622-632, Autumn. [Downloadable!] (restricted)
  2. Mohring, Herbert, 1970. "The Peak Load Problem with Increasing Returns and Pricing Constraints," American Economic Review, American Economic Association, vol. 60(4), pages 693-705, September. [Downloadable!] (restricted)
  3. Sherman, Roger, 1971. "Congestion Interdependence and Urban Transit Fares," Econometrica, Econometric Society, vol. 39(3), pages 565-76, May. [Downloadable!] (restricted)
  4. Bertrand, Trent J, 1977. "'Second Best' Congestion Taxes in Transportation Systems," Econometrica, Econometric Society, vol. 45(7), pages 1703-15, October. [Downloadable!] (restricted)
  5. Braid, Ralph M., 1996. "Peak-Load Pricing of a Transportation Route with an Unpriced Substitute," Journal of Urban Economics, Elsevier, vol. 40(2), pages 179-197, September. [Downloadable!] (restricted)
  6. Liu, Louie Nan & McDonald, John F., 1998. "Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model," Journal of Urban Economics, Elsevier, vol. 44(3), pages 352-366, November. [Downloadable!] (restricted)
  7. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-79, March. [Downloadable!] (restricted)
  8. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Blackwell Publishing, vol. 99(2), pages 261-79, June. [Downloadable!] (restricted)
  9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May. [Downloadable!] (restricted)
  10. Wilson, John D., 1983. "Optimal road capacity in the presence of unpriced congestion," Journal of Urban Economics, Elsevier, vol. 13(3), pages 337-357, May. [Downloadable!] (restricted)
  11. Kraus, Marvin & Yoshida, Yuichiro, 2002. "The Commuter's Time-of-Use Decision and Optimal Pricing and Service in Urban Mass Transit," Journal of Urban Economics, Elsevier, vol. 51(1), pages 170-195, January. [Downloadable!] (restricted)
  12. Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November. [Downloadable!] (restricted)
  13. Richard Arnott & Kenneth Small, 1993. "The Economics Of Traffic Congestion," Boston College Working Papers in Economics 256, Boston College Department of Economics.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hideo Konishi, 2001. "Uniqueness of User Equilibrium in Transportation Networks with Heterogeneous Commuters," Boston College Working Papers in Economics 494, Boston College Department of Economics, revised 14 Nov 2002. [Downloadable!]
  2. Richard Arnott, 2001. "The Economic Theory of Urban Traffic Congestion: A Microscopic Research Agenda," Boston College Working Papers in Economics 502, Boston College Department of Economics. [Downloadable!]
  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. [Downloadable!]
    Other versions:
  4. Jan Rouwendal & Erik T. Verhoef, 2003. "Second-best Pricing for Imperfect Substitutes in Urban Networks," Tinbergen Institute Discussion Papers 03-085/3, Tinbergen Institute. [Downloadable!]
    Other versions:
  5. Safirova, Elena & Gillingham, Kenneth, 2003. "Measuring Marginal Congestion Costs of Urban Transportation: Do Networks Matter?," Discussion Papers dp-03-56, Resources For the Future. [Downloadable!]
    Other versions:
  6. C. Robin Lindsey & Erik T. Verhoef, 2000. "Traffic Congestion and Congestion Pricing," Tinbergen Institute Discussion Papers 00-101/3, Tinbergen Institute. [Downloadable!]
  7. 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:
  8. Pedro Cantos-Sanchez & Rafael Moner-Colonques & Jose J. Sempere-Monerris & Oscar Alvarez, 2008. "Viability of a New Road Infrastructure with Heterogeneous Users in Madrid Access," Working Papers 2008-06, FEDEA. [Downloadable!]
  9. Richard Arnott & John Rowse, 2007. "Downtown Parking in Auto City," Boston College Working Papers in Economics 665, Boston College Department of Economics. [Downloadable!]
    Other versions:
  10. Richard Arnott, 2007. "Congestion Tolling with Agglomeration Externalities," Boston College Working Papers in Economics 660, Boston College Department of Economics. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-24.

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