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Individual tradable permit market and traffic congestion: An experimental study

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  • Ch'ng, Kean Siang

Abstract

This paper investigates the potential of an individual tradable permit system in an experimental two-sided repeated double auction market to overcome over-consumption through road demand management. The evaluation of this system shows that traders exhibit strong dependence on reservation price and there are significant transfers of permit from low value users to high value users. During peak hours, the permit price increases owing to high demand, so the cost of using the road is high during congestion. This creates incentive for low value drivers to postpone their trips and resell permits in the peak hours to gain profit. The results show the delayer pays principle, in which drivers who value highly have to pay drivers who are willing to stay off the road during peak hours.

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File URL: http://mpra.ub.uni-muenchen.de/26638/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26638.

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Date of creation: 16 Oct 2010
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Handle: RePEc:pra:mprapa:26638

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Keywords: : Individual tradable permit; Congestion; High value and low value drivers; Allocative efficiency;

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  1. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  2. David Levinson & Peter Rafferty, 2004. "Delayer Pays Principle: Examining Congestion Pricing with Compensation," Working Papers 200407, University of Minnesota: Nexus Research Group.
  3. Richard Arnott & Andre de Palma & Robin Lindsey, 1993. "The Welfare Effects Of Congestion Tolls With Heterogeneous Commuters," Boston College Working Papers in Economics 231, Boston College Department of Economics.
  4. Cason, Timothy N. & Friedman, Daniel, 1996. "Price formation in double auction markets," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1307-1337, August.
  5. Wadud, Zia, 2011. "Personal tradable carbon permits for road transport: Why, why not and who wins?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1052-1065.
  6. E Verhoef & P Nijkamp & P Rietveld, 1997. "Tradeable permits: their potential in the regulation of road transport externalities," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 24(4), pages 527-548, July.
  7. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(1), pages 1-25, January.
  8. Raux, Charles & Marlot, Grégoire, 2005. "A system of tradable CO2 permits applied to fuel consumption by motorists," Transport Policy, Elsevier, vol. 12(3), pages 255-265, May.
  9. Koh, Winston T. H. & Lee, David K. C., 1994. "The vehicle quota system in Singapore: An assessment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 28(1), pages 31-47, January.
  10. Friedman, Daniel, 1984. "On the Efficiency of Experimental Double Auction Markets," American Economic Review, American Economic Association, vol. 74(1), pages 60-72, March.
  11. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Verhoef Erik T., 1997. "Externalities," Serie Research Memoranda 0031, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  13. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111.
  14. Charles Raux, 2004. "The Use of Transferable Permits in Transport Policy," Post-Print halshs-00067895, HAL.
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