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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.

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  • 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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    Cited by:

    1. Zhao, Yunpeng & Song, Jinbo & Feng, Zhuo & Jin, Lulu, 2023. "Incentive contracts with demand guarantee in BOT toll road projects," Research in Transportation Economics, Elsevier, vol. 98(C).
    2. Nicholas Janusch & Stephan Kroll & Christopher Goemans & Todd L. Cherry & Steffen Kallbekken, 2021. "Learning to accept welfare-enhancing policies: an experimental investigation of congestion pricing," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 59-86, March.
    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. Hall, Jonathan D., 2018. "Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways," Journal of Public Economics, Elsevier, vol. 158(C), pages 113-125.
    6. 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.
    7. Light, Thomas, 2012. "High Occupancy Toll Lane Performance Under Alternative Pricing Policies," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 51(2).
    8. 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.

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