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Governmental competition in road charging and capacity choice

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  • Ubbels, Barry
  • Verhoef, Erik T.

Abstract

This paper studies policy interactions between an urban and a regional government, both controlling one link of a two-link serial road network, where regional drivers may use both roads and urban drivers use the urban road only. Both governments set capacity and toll on one link, in a two-stage game where tolls are set after capacities have been committed to, and try to maximize social surplus for their own population. We use a simulation model to investigate the welfare consequences of the various possible game-theoretical set-ups. We find that governmental competition may be rather harmful to aggregate social surplus, compared to first-best policies. The main determinant of social welfare is not which exact type of game is played between the two governments, but much more whether there is cooperation (leading to first-best) or competition between them. Only of secondary importance is the question who is leading in the price stage (if there is a leader). Sensitivity analysis suggests that the relative performance for most game situations improves when demand becomes more elastic, and remain insensitive with respect to the unit cost of capacity expansions.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:regeco:v:38:y:2008:i:2:p:174-190
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bruno DE BORGER & Stefan PROOST, 2012. "Policies to reduce traffic externalities in cities," Working Papers Department of Economics ces12.10, KU Leuven, Faculty of Economics and Business, Department of Economics.
    2. Georgina Santos & Erik Verhoef, 2011. "Road Congestion Pricing," Chapters,in: A Handbook of Transport Economics, chapter 23 Edward Elgar Publishing.
    3. Russo, Antonio, 2013. "Voting on road congestion policy," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 707-724.
    4. Bruno Borger & Stef Proost, 2016. "The political economy of pricing and capacity decisions for congestible local public goods in a federal state," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 934-959, October.
    5. Fung, Chau Man & Proost, Stef, 2017. "Can we decentralize transport taxes and infrastructure supply?," Economics of Transportation, Elsevier, vol. 9(C), pages 1-19.
    6. Erik T. Verhoef, 2007. "Private Roads," Tinbergen Institute Discussion Papers 07-093/3, Tinbergen Institute, revised 25 Jun 2008.
    7. De Borger, Bruno & Proost, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Economics of Transportation, Elsevier, pages 35-48.
    8. Mun, Se-il & Nakagawa, Shintaro, 2010. "Pricing and investment of cross-border transport infrastructure," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 228-240, July.
    9. Watling, D.P. & Shepherd, S.P. & Koh, A., 2015. "Cordon toll competition in a network of two cities: Formulation and sensitivity to traveller route and demand responses," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 93-116.
    10. Bruno De Borger & Wilfried Pauwels, 2010. "A Nash bargaining solution to models of tax and investment competition: tolls and investment in serial transport corridors," Working Papers 2010/1, Institut d'Economia de Barcelona (IEB).
    11. Shepherd, Simon & Balijepalli, Chandra, 2015. "A game of two cities: A toll setting game with experimental results," Transport Policy, Elsevier, vol. 38(C), pages 95-109.
    12. De Borger, Bruno & Proost, Stef, 2013. "Traffic externalities in cities: The economics of speed bumps, low emission zones and city bypasses," Journal of Urban Economics, Elsevier, vol. 76(C), pages 53-70.
    13. Lindsey, Robin, 2012. "Road pricing and investment," Economics of Transportation, Elsevier, vol. 1(1), pages 49-63.
    14. Astrid Gühnemann & Andrew Koh & Simon Shepherd, 2016. "Optimal Charging Strategies under Conflicting Objectives for the Protection of Sensitive Areas: A Case Study of the Trans-Pennine Corridor," Networks and Spatial Economics, Springer, vol. 16(1), pages 199-226, March.
    15. Gühnemann, Astrid & Koh, Andrew & Shepherd, Simon & Lawler, Mary, 2011. "Implications of interdependencies between charging strategies of local authorities for the protection of sensitive areas in the Trans-Pennine Corridor," Utilities Policy, Elsevier, vol. 19(1), pages 42-52, January.

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    JEL classification:

    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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