IDEAS home Printed from https://ideas.repec.org/a/bla/jregsc/v44y2004i3p405-435.html
   My bibliography  Save this article

Pricing, Capacity Choice, and Financing in Transportation Networks

Author

Listed:
  • Erik T. Verhoef
  • Jan Rouwendal

Abstract

. This paper explores interrelations between pricing, capacity choice, and financing in transportation networks. We build on the Mohring‐Harwitz result on self‐financing of optimally designed and priced roads and investigate it in a network environment under various types of second‐best regulation. A small network model with endogenous car ownership demonstrates that optimal congestion pricing and capacity choice over an entire network may cause user prices to increase more in initially mildly congested areas compared to heavily congested areas. Furthermore, a flat kilometer charge under optimal capacity choice may result in first‐best efficiency gains.

Suggested Citation

  • Erik T. Verhoef & Jan Rouwendal, 2004. "Pricing, Capacity Choice, and Financing in Transportation Networks," Journal of Regional Science, Wiley Blackwell, vol. 44(3), pages 405-435, August.
    • Handle: RePEc:bla:jregsc:v:44:y:2004:i:3:p:405-435
    DOI: 10.1111/j.0022-4146.2004.00343.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0022-4146.2004.00343.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0022-4146.2004.00343.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Smith, W. Spencer & Hall, Fred L. & Montgomery, Frank O., 1996. "Comparing the speed-flow relationship for motorways with new data from the M6," Transportation Research Part A: Policy and Practice, Elsevier, vol. 30(2), pages 89-101, March.
    2. Small, Kenneth A., 1999. "Economies of scale and self-financing rules with non-competitive factor markets," Journal of Public Economics, Elsevier, vol. 74(3), pages 431-450, December.
    3. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," Journal of Urban Economics, Elsevier, vol. 49(2), pages 310-336, March.
    4. Kraus, Marvin, 1981. "Scale economies analysis for urban highway networks," Journal of Urban Economics, Elsevier, vol. 9(1), pages 1-22, January.
    5. Bichsel, Robert, 2001. "Should Road Users Pay the Full Cost of Road Provision?," Journal of Urban Economics, Elsevier, vol. 50(2), pages 367-383, September.
    6. 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.
    7. De Borger, Bruno, 2001. "Discrete choice models and optimal two-part tariffs in the presence of externalities: optimal taxation of cars," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 471-504, July.
    8. 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.
    9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    10. Newbery, David M, 1988. "Road Damage Externalities and Road User Charges," Econometrica, Econometric Society, vol. 56(2), pages 295-316, March.
    11. Walter Y. Oi, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(1), pages 77-96.
    12. F. H. Knight, 1924. "Some Fallacies in the Interpretation of Social Cost," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 38(4), pages 582-606.
    13. Keeler, Theodore E & Small, Kenneth A, 1977. "Optimal Peak-Load Pricing, Investment, and Service Levels on Urban Expressways," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 1-25, February.
    14. 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.
    15. Newbery, David M, 1989. "Cost Recovery from Optimally Designed Roads," Economica, London School of Economics and Political Science, vol. 56(222), pages 165-185, May.
    16. Verhoef, Erik T., 2002. "Second-best congestion pricing in general networks. Heuristic algorithms for finding second-best optimal toll levels and toll points," Transportation Research Part B: Methodological, Elsevier, vol. 36(8), pages 707-729, September.
    17. 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.
    18. 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.
    19. 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.
    20. 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 161-179, March.
    21. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-279, June.
    22. Yang, Hai & Meng, Qiang, 2002. "A note on "highway pricing and capacity choice in a road network under a build-operate-transfer scheme"," Transportation Research Part A: Policy and Practice, Elsevier, vol. 36(7), pages 659-663, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tan, Zhijia & Yang, Hai & Guo, Xiaolei, 2010. "Properties of Pareto-efficient contracts and regulations for road franchising," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 415-433, May.
    2. DE BORGER, Bruno & MAYERES, Inge, "undated". "Taxation of car-ownership, car use and public transport: Insight derived from a discrete choice numerical optimisation model," Working Papers 2004021, University of Antwerp, Faculty of Business and Economics.
    3. Lei Zhang & David Levinson, 2007. "The Economics of Transportation Network Growth," Contributions to Economics, in: Pablo Coto-Millán & Vicente Inglada (ed.), Essays on Transport Economics, chapter 17, pages 317-339, Springer.
    4. Wang, Wei (Walker) & Jin, Xi & Tan, Zhijia & Sun, Huijun & Wu, Jianjun, 2022. "Modeling the effects of government subsidy and regulation on BOT transport project contract design within contractible service quality," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    5. Bruno de Borger & Stef Proost, 2004. "Vertical and horizontal tax competition in the transport sector," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(4), pages 45-64.
    6. Kockelman, Kara M. & Lemp, Jason D., 2011. "Anticipating new-highway impacts: Opportunities for welfare analysis and credit-based congestion pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(8), pages 825-838, October.
    7. Ubbels, Barry & Verhoef, Erik T., 2008. "Governmental competition in road charging and capacity choice," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 174-190, March.
    8. Feng Xie & David Levinson, 2009. "Governance choice on a serial network," Public Choice, Springer, vol. 141(1), pages 189-212, October.
    9. Schwarz, Gregor & Bichler, Martin, 2022. "How to trade thirty thousand products: A wholesale market design for road capacity," Transportation Research Part A: Policy and Practice, Elsevier, vol. 164(C), pages 167-185.
    10. Tsai, Jyh-Fa & Chu, Chih-Peng, 2010. "Analysis of the optimal length of road expansion - A case study of the Taipei metropolitan area," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(3), pages 147-158, March.
    11. Tan, Zhijia & Yang, Hai, 2012. "Flexible build-operate-transfer contracts for road franchising under demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1419-1439.
    12. Liu, Tian-Liang & Chen, Jian & Huang, Hai-Jun, 2011. "Existence and efficiency of oligopoly equilibrium under toll and capacity competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 908-919.
    13. M. Rouhani, Omid, 2014. "Road pricing: An overview," MPRA Paper 59662, University Library of Munich, Germany.
    14. de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
    15. Kilani, Moez & Proost, Stef & van der Loo, Saskia, 2014. "Road pricing and public transport pricing reform in Paris: Complements or substitutes?," Economics of Transportation, Elsevier, vol. 3(2), pages 175-187.
    16. Piet Rietveld & Stefan van Woudenberg, 2007. "Second-best Decision Making of Railway Operators: How to Fix Fares, Frequency and Vehicle Size," Journal of Transport Economics and Policy, University of Bath, vol. 41(3), pages 363-385, September.
    17. Guo, Qianwen & Sun, Yanshuo & Li, Zhi-Chun & Li, Zhongfei, 2017. "An integrated model for road capacity choice and cordon toll pricing," Research in Transportation Economics, Elsevier, vol. 62(C), pages 68-79.
    18. Omid M. Rouhani, 2016. "Next Generations of Road Pricing: Social Welfare Enhancing," Sustainability, MDPI, vol. 8(3), pages 1-15, March.
    19. De Borger, Bruno & Proost, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Economics of Transportation, Elsevier, vol. 1(1), pages 35-48.
    20. Andrew Koh & Simon Shepherd & Agachai Sumalee, 2009. "Second best toll and capacity optimisation in networks: solution algorithm and policy implications," Transportation, Springer, vol. 36(2), pages 147-165, March.
    21. Meng, Qiang & Lu, Zhaoyang, 2017. "Quantitative analyses of highway franchising under build-operate-transfer scheme: Critical review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 102(C), pages 105-123.
    22. Xiao, Feng & Yang, Hai & Han, Deren, 2007. "Competition and efficiency of private toll roads," Transportation Research Part B: Methodological, Elsevier, vol. 41(3), pages 292-308, March.
    23. Verhoef, Erik T. & Koh, Andrew & Shepherd, Simon, 2010. "Pricing, capacity and long-run cost functions for first-best and second-best network problems," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 870-885, August.
    24. De Borger, Bruno & Mayeres, Inge, 2007. "Optimal taxation of car ownership, car use and public transport: Insights derived from a discrete choice numerical optimization model," European Economic Review, Elsevier, vol. 51(5), pages 1177-1204, July.
    25. Erik T. Verhoef & Herbert Mohring, 2007. "Self-Financing Roads," Tinbergen Institute Discussion Papers 07-068/3, Tinbergen Institute.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erik T. Verhoef & Herbert Mohring, 2007. "Self-Financing Roads," Tinbergen Institute Discussion Papers 07-068/3, Tinbergen Institute.
    2. Button, Kenneth, 2004. "1. The Rationale For Road Pricing: Standard Theory And Latest Advances," Research in Transportation Economics, Elsevier, vol. 9(1), pages 3-25, January.
    3. de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
    4. Lindsey, Robin, 2012. "Road pricing and investment," Economics of Transportation, Elsevier, vol. 1(1), pages 49-63.
    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, 2007. "Congestion tolling with agglomeration externalities," Journal of Urban Economics, Elsevier, vol. 62(2), pages 187-203, September.
    7. Arnott, Richard & Shevyakhova, Elizaveta, 2014. "Tenancy rent control and credible commitment in maintenance," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 72-85.
    8. Button, Kenneth, 2020. "The Transition From Pigou’S Ideas On Road Pricing To Their Application," Journal of the History of Economic Thought, Cambridge University Press, vol. 42(3), pages 417-438, September.
    9. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
    10. Kraus, Marvin, 2012. "Road pricing with optimal mass transit," Journal of Urban Economics, Elsevier, vol. 72(2), pages 81-86.
    11. Arnott, Richard & Rowse, John, 2009. "Downtown parking in auto city," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 1-14, January.
    12. Santos, Georgina & Behrendt, Hannah & Maconi, Laura & Shirvani, Tara & Teytelboym, Alexander, 2010. "Part I: Externalities and economic policies in road transport," Research in Transportation Economics, Elsevier, vol. 28(1), pages 2-45.
    13. Kraus, Marvin, 2003. "A new look at the two-mode problem," Journal of Urban Economics, Elsevier, vol. 54(3), pages 511-530, November.
    14. Rouwendal, Jan & Verhoef, Erik T., 2004. "2. Second-Best Pricing For Imperfect Substitutes In Urban Networks," Research in Transportation Economics, Elsevier, vol. 9(1), pages 27-60, January.
    15. De Borger, Bruno & Mayeres, Inge, 2007. "Optimal taxation of car ownership, car use and public transport: Insights derived from a discrete choice numerical optimization model," European Economic Review, Elsevier, vol. 51(5), pages 1177-1204, July.
    16. Rouwendal, Jan & Verhoef, Erik T., 2006. "Basic economic principles of road pricing: From theory to applications," Transport Policy, Elsevier, vol. 13(2), pages 106-114, March.
    17. Carmona, Miguel, 2010. "The regulatory function in public-private partnerships for the provision of transport infrastructure," Research in Transportation Economics, Elsevier, vol. 30(1), pages 110-125.
    18. Georgina Santos & Erik Verhoef, 2011. "Road Congestion Pricing," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 23, Edward Elgar Publishing.
    19. C. Robin Lindsey & Erik T. Verhoef, 2000. "Traffic Congestion and Congestion Pricing," Tinbergen Institute Discussion Papers 00-101/3, Tinbergen Institute.
    20. Ian W. H. Parry & Antonio Bento, 2001. "Revenue Recycling and the Welfare Effects of Road Pricing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 645-671, December.

    More about this item

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jregsc:v:44:y:2004:i:3:p:405-435. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-4146 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.