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Optimal highway design and user welfare under value pricing

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  • Light, Thomas

Abstract

This paper investigates the optimal design of highways operated under a form of congestion pricing called value pricing. Value pricing involves dividing a highway into free and priced lanes so that in equilibrium the highway effectively operates at two levels of service, with those users placing a higher value on travel time savings selecting the faster, priced route. A tractable analytical framework is developed which allows analysis of equilibrium and welfare on value priced highways when users vary in their value of time. The model is used to characterize optimal toll and capacity policies, as well as investigate the fiscal implications of value pricing. The analysis concludes with results on how welfare changes induced by value pricing are distributed over the population of users when the government finances any funding shortfall through a non-discriminatory taxing mechanism. A realistic numeric example is used to illustrate how the model can be applied to evaluation of actual and proposed value pricing implementations.

Suggested Citation

  • Light, Thomas, 2009. "Optimal highway design and user welfare under value pricing," Journal of Urban Economics, Elsevier, vol. 66(2), pages 116-124, September.
  • Handle: RePEc:eee:juecon:v:66:y:2009:i:2:p:116-124
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. Edelson, Noel M, 1971. "Congestion Tolls Under Monopoly," American Economic Review, American Economic Association, vol. 61(5), pages 873-882, December.
    5. Helsley, Robert W. & Strange, William C., 1998. "Private government," Journal of Public Economics, Elsevier, vol. 69(2), pages 281-304, June.
    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.
    7. 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.
    8. de Palma, André & Kilani, Moez & Lindsey, Robin, 2008. "The merits of separating cars and trucks," Journal of Urban Economics, Elsevier, vol. 64(2), pages 340-361, September.
    9. 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.
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    Cited by:

    1. repec:eee:pubeco:v:158:y:2018:i:c:p:113-125 is not listed on IDEAS
    2. Light, Thomas, 2012. "High Occupancy Toll Lane Performance Under Alternative Pricing Policies," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 51(2).
    3. Paul Koster & Erik T. Verhoef & Simon Shepherd & David Watling, 2014. "Probabilistic Choice and Congestion Pricing with Heterogeneous Travellers and Price-Sensitive Demand," Tinbergen Institute Discussion Papers 14-078/VIII, Tinbergen Institute, revised 13 Nov 2014.
    4. Tan, Zhijia & Yang, Hai, 2012. "The impact of user heterogeneity on road franchising," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 958-975.
    5. Zhang, Fangni & Yang, Hai & Liu, Wei, 2014. "The Downs–Thomson Paradox with responsive transit service," Transportation Research Part A: Policy and Practice, Elsevier, vol. 70(C), pages 244-263.
    6. Jonathan D. Hall, 2015. "Pareto Improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways," Working Papers tecipa-548, University of Toronto, Department of Economics.
    7. repec:eee:transb:v:102:y:2017:i:c:p:105-123 is not listed on IDEAS

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