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The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation

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  • Small, Kenneth A.
  • Yan, Jia

Abstract

Some road-pricing demonstrations use “value pricing,†in which travelers can choose between a free but congested roadway and a priced roadway. Recent research has uncovered a potentially serious problem for such demonstrations, second-best tolls may be far lower than those typically charged, and from a welfare perspective, the latter may be worse than not pricing at all. That research, however, assumes that all travelers are identical and it therefore neglects the benefits of product differentiation. Using a model with two user groups, we find that accounting for heterogeneity in value of time as important in evaluating constrained policies, and improves the relative performance of policies that offer differential prices.

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Bibliographic Info

Paper provided by University of California Transportation Center in its series University of California Transportation Center, Working Papers with number qt9569k1sz.

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Date of creation: 01 Jan 2001
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Handle: RePEc:cdl:uctcwp:qt9569k1sz

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Keywords: Value pricing; congestion pricing; value of time; road pricing; high occupancy/toll lanes; Social and Behavioral Sciences;

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  1. AndrÊ de Palma & Robin Lindsey, 2000. "Private toll roads: Competition under various ownership regimes," The Annals of Regional Science, Springer, vol. 34(1), pages 13-35.
  2. Verhoef, Erik Teodoor & Small, Kenneth A., 1999. "Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," ERSA conference papers ersa99pa358, European Regional Science Association.
  3. 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.
  4. Erik T. Verhoef & Kenneth A. Small, 1999. "Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," Tinbergen Institute Discussion Papers 99-066/3, Tinbergen Institute.
  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.
  6. Viton Philip A., 1995. "Private Roads," Journal of Urban Economics, Elsevier, vol. 37(3), pages 260-289, May.
  7. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1992. "Route choice with heterogeneous drivers and group-specific congestion costs," Regional Science and Urban Economics, Elsevier, vol. 22(1), pages 71-102, March.
  8. repec:dgr:uvatin:2099066 is not listed on IDEAS
  9. 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.
  10. Bradford, Richard M., 1996. "Pricing, routing, and incentive compatibility in multiserver queues," European Journal of Operational Research, Elsevier, vol. 89(2), pages 226-236, March.
  11. Small, Kenneth A. & Gomez-Ilbanez, Jose A., 1998. "Road Pricing for Congestion Management: The Transition from Theory to Policy," University of California Transportation Center, Working Papers qt8kk909p1, University of California Transportation Center.
  12. Shmanske, Stephen, 1991. "Price Discrimination and Congestion," National Tax Journal, National Tax Association, vol. 44(4), pages 529-32, December .
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