IDEAS home Printed from https://ideas.repec.org/a/kap/transp/v45y2018i3d10.1007_s11116-016-9753-z.html
   My bibliography  Save this article

The correlation of externalities in marginal cost pricing: lessons learned from a real-world case study

Author

Listed:
  • Amit Agarwal

    (Technische Universität Berlin)

  • Benjamin Kickhöfer

    (German Aerospace Center (DLR))

Abstract

Negative externalities cause inefficiencies in the allocation of capacities and resources in a transport system. Marginal social cost pricing allows to correct for these inefficiencies in a simulation environment and to derive real-world policy recommendations. In this context, it has been shown for analytical models considering more than one externality, that the correlation between the externalities needs to be taken into account. Typically, in order to avoid overpricing, this is performed by introducing correction factors which capture the correlation effect. However, the correlation structure between, say, emission and congestion externalities changes for every congested facility over time of day. This makes it close to impossible to calculate the factors analytically for large-scale systems. Hence, this paper presents a simulation-based approach to calculate and internalize the correct dynamic price levels for both externalities simultaneously. For a real-world case study, it is shown that the iterative calculation of prices based on cost estimates from the literature allows to identify the amplitude of the correlation between the two externalities under consideration: for the urban travelers of the case study, emission toll levels—without pricing congestion—turn out to be 4.0% too high in peak hours and 2.8% too high in off-peak hours. In contrary, congestion toll levels—without pricing emissions—are overestimated by 3.0% in peak hours and by 7.2% in off-peak hours. With a joint pricing policy of both externalities, the paper shows that the approach is capable to determine the amplitude of the necessary correction factors for large-scale systems. It also provides the corrected average toll levels per vehicle kilometer for peak and off-peak hours for the case study under consideration: again, for urban travelers, the correct price level for emission and congestion externalities amounts approximately to 38 $${EUR}ct/\rm {km}$$ E U R c t / km in peak hours and to 30 $${EUR}ct/\rm {km}$$ E U R c t / km in off-peak hours. These toll levels can be used to derive real-world pricing schemes. Finally, the economic assessment indicators for the joint pricing policy provided in the paper allow to compare other policies to this benchmark state of the transport system.

Suggested Citation

  • Amit Agarwal & Benjamin Kickhöfer, 2018. "The correlation of externalities in marginal cost pricing: lessons learned from a real-world case study," Transportation, Springer, vol. 45(3), pages 849-873, May.
    • Handle: RePEc:kap:transp:v:45:y:2018:i:3:d:10.1007_s11116-016-9753-z
    DOI: 10.1007/s11116-016-9753-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11116-016-9753-z
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11116-016-9753-z?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Graham Wall, 2011. "Environmental parking charging policies: A case study of Winchester," Local Economy, London South Bank University, vol. 26(4), pages 246-259, June.
    2. Jian Wang & Libing Chi & Xiaowei Hu & Hongfei Zhou, 2014. "Urban Traffic Congestion Pricing Model with the Consideration of Carbon Emissions Cost," Sustainability, MDPI, vol. 6(2), pages 1-16, February.
    3. Whitehead, Jake & Franklin, Joel P. & Washington, Simon, 2014. "The impact of a congestion pricing exemption on the demand for new energy efficient vehicles in Stockholm," Transportation Research Part A: Policy and Practice, Elsevier, vol. 70(C), pages 24-40.
    4. Tol, Richard S. J., 2005. "The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties," Energy Policy, Elsevier, vol. 33(16), pages 2064-2074, November.
    5. Weinreich, Sigurd & Rennings, Klaus & Schlomann, Barbara & Geßner, Christian & Engel, Thomas, 1998. "External Costs of Road, Rail and Air Transport - a Bottom-Up Approach," ZEW Discussion Papers 98-06, ZEW - Leibniz Centre for European Economic Research.
    6. Golnaz Ghafghazi & Marianne Hatzopoulou, 2014. "Simulating the environmental effects of isolated and area-wide traffic calming schemes using traffic simulation and microscopic emission modeling," Transportation, Springer, vol. 41(3), pages 633-649, May.
    7. Richard Arnott & André de Palma & Robin Lindsey, 1993. "Properties of Dynamic Traffic Equilibrium Involving Bottlenecks, Including a Paradox and Metering," Transportation Science, INFORMS, vol. 27(2), pages 148-160, May.
    8. Eliasson, Jonas & Hultkrantz, Lars & Nerhagen, Lena & Rosqvist, Lena Smidfelt, 2009. "The Stockholm congestion - charging trial 2006: Overview of effects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 43(3), pages 240-250, March.
    9. David Charypar & Kai Nagel, 2005. "Generating complete all-day activity plans with genetic algorithms," Transportation, Springer, vol. 32(4), pages 369-397, July.
    10. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    11. Chen, Linxi & Yang, Hai, 2012. "Managing congestion and emissions in road networks with tolls and rebates," Transportation Research Part B: Methodological, Elsevier, vol. 46(8), pages 933-948.
    12. Marco Percoco, 2015. "Heterogeneity in the reaction of traffic flows to road pricing: a synthetic control approach applied to Milan," Transportation, Springer, vol. 42(6), pages 1063-1079, November.
    13. Rotaris, Lucia & Danielis, Romeo & Marcucci, Edoardo & Massiani, Jérôme, 2010. "The urban road pricing scheme to curb pollution in Milan, Italy: Description, impacts and preliminary cost-benefit analysis assessment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(5), pages 359-375, June.
    14. Simon Shepherd, 2008. "The effect of complex models of externalities on estimated optimal tolls," Transportation, Springer, vol. 35(4), pages 559-577, July.
    15. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    16. Börjesson, Maria & Kristoffersson, Ida, 2015. "The Gothenburg congestion charge. Effects, design and politics," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 134-146.
    17. Percoco, Marco, 2014. "The effect of road pricing on traffic composition: Evidence from a natural experiment in Milan, Italy," Transport Policy, Elsevier, vol. 31(C), pages 55-60.
    18. Proost, Stef & Van Dender, Kurt, 2001. "The welfare impacts of alternative policies to address atmospheric pollution in urban road transport," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 383-411, July.
    19. Daniel, Joseph I. & Bekka, Khalid, 2000. "The Environmental Impact of Highway Congestion Pricing," Journal of Urban Economics, Elsevier, vol. 47(2), pages 180-215, March.
    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. Merkert, Rico & Beck, Matthew J. & Bushell, James, 2021. "Will It Fly? Adoption of the road pricing framework to manage drone use of airspace," Transportation Research Part A: Policy and Practice, Elsevier, vol. 150(C), pages 156-170.
    2. Haoning Xi & Liu He & Yi Zhang & Zhen Wang, 2020. "Bounding the efficiency gain of differentiable road pricing for EVs and GVs to manage congestion and emissions," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-36, July.
    3. Lombardi, Lidia & Francini, Giovanni, 2020. "Techno-economic and environmental assessment of the main biogas upgrading technologies," Renewable Energy, Elsevier, vol. 156(C), pages 440-458.
    4. Robin Lindsey & André de Palma & Pouya Rezaeini, 2022. "Tolls vs tradable permits for managing travel on a bimodal congested network with variable capacities and demands," THEMA Working Papers 2022-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. Thombre, Anurag & Agarwal, Amit, 2021. "A paradigm shift in urban mobility: Policy insights from travel before and after COVID-19 to seize the opportunity," Transport Policy, Elsevier, vol. 110(C), pages 335-353.

    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. Ihab Kaddoura & Kai Nagel, 2018. "Simultaneous internalization of traffic congestion and noise exposure costs," Transportation, Springer, vol. 45(5), pages 1579-1600, September.
    2. Vosough, Shaghayegh & de Palma, André & Lindsey, Robin, 2022. "Pricing vehicle emissions and congestion externalities using a dynamic traffic network simulator," Transportation Research Part A: Policy and Practice, Elsevier, vol. 161(C), pages 1-24.
    3. Andrea Baranzini & Stefano Carattini & Linda Tesauro, 2021. "Designing Effective and Acceptable Road Pricing Schemes: Evidence from the Geneva Congestion Charge," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(3), pages 417-482, July.
    4. Mengying Cui & David Levinson, 2021. "Shortest paths, travel costs, and traffic," Environment and Planning B, , vol. 48(4), pages 828-844, May.
    5. Eliasson, Jonas, 2017. "Congestion pricing," MPRA Paper 88224, University Library of Munich, Germany.
    6. Xin Lin & Chris M. J. Tampère & Stef Proost, 2020. "Optimizing Traffic System Performance with Environmental Constraints: Tolls and/or Additional Delays," Networks and Spatial Economics, Springer, vol. 20(1), pages 137-177, March.
    7. Percoco, Marco, 2014. "The impact of road pricing on housing prices: Preliminary evidence from Milan," Transportation Research Part A: Policy and Practice, Elsevier, vol. 67(C), pages 188-194.
    8. Rodriguez-Roman, Daniel & Ritchie, Stephen G., 2020. "Surrogate-based optimization for multi-objective toll design problems," Transportation Research Part A: Policy and Practice, Elsevier, vol. 137(C), pages 485-503.
    9. Zhong, Shaopeng & Bushell, Max, 2017. "Impact of the built environment on the vehicle emission effects of road pricing policies: A simulation case study," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 235-249.
    10. DE BORGER, Bruno & PROOST, Stef, 2015. "Tax and regulatory policies for European transport - getting there, but in the slow lane," Working Papers 2015009, University of Antwerp, Faculty of Business and Economics.
    11. Kaddoura, Ihab & Bischoff, Joschka & Nagel, Kai, 2020. "Towards welfare optimal operation of innovative mobility concepts: External cost pricing in a world of shared autonomous vehicles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 136(C), pages 48-63.
    12. Coria, Jessica & Bonilla, Jorge & Grundström, Maria & Pleijel, Håkan, 2015. "Air pollution dynamics and the need for temporally differentiated road pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 178-195.
    13. Marazi, Naveed Farooz & Majumdar, Bandhan Bandhu & Sahu, Prasanta K. & Potoglou, Dimitris, 2022. "Congestion pricing acceptability among commuters: An Indian perspective," Research in Transportation Economics, Elsevier, vol. 95(C).
    14. Fageda, Xavier & Flores-Fillol, Ricardo & Theilen, Bernd, 2022. "Price versus quantity measures to deal with pollution and congestion in urban areas: A political economy approach," Journal of Environmental Economics and Management, Elsevier, vol. 115(C).
    15. André de Palma & Shaghayegh Vosough & Robin Lindsey, 2020. "Pricing vehicle emissions and congestion using a dynamic traffic network simulator," THEMA Working Papers 2020-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    16. Börjesson, Maria & Kristoffersson, Ida, 2018. "The Swedish congestion charges: Ten years on," Transportation Research Part A: Policy and Practice, Elsevier, vol. 107(C), pages 35-51.
    17. Juan Pedro Muñoz Miguel & Ana Elizabeth García Sipols & Clara Simón de Blas & Francisca Anguita Rodríguez, 2021. "A Model to Evaluate the Effect of Urban Road Pricing on Traffic Speed and Congestion in Madrid City Center and Its Surrounding," Sustainability, MDPI, vol. 13(15), pages 1-23, July.
    18. Timothy Welch & Sabyasachee Mishra, 2014. "Envisioning an emission diet: application of travel demand mechanisms to facilitate policy decision making," Transportation, Springer, vol. 41(3), pages 611-631, May.
    19. Andersson, David & Nässén, Jonas, 2016. "The Gothenburg congestion charge scheme: A pre–post analysis of commuting behavior and travel satisfaction," Journal of Transport Geography, Elsevier, vol. 52(C), pages 82-89.
    20. Cornago, Elisabetta & Dimitropoulos, Alexandros & Oueslati, Walid, 2023. "The impact of urban road pricing on the use of bike sharing," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).

    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:kap:transp:v:45:y:2018:i:3:d:10.1007_s11116-016-9753-z. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.