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Price-Induced Distortions in Urban Highway Investment

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  • William C. Wheaton

Abstract

This paper compares "first-best" highway investment when congestion pricing is in effect with "second-best" investment when such pricing is not used. The paper's main result is that as the pricing of roads falls below social costs, "second-best" investment expands to accommodate demand, but not by nearly so much as would be called for under first-best cost-benefit criteria. Under second-best investment, the level of time congestion is allowed to rise to compensate for the absence of monetary congestion pricing. There is some suggestion that overinvestment in American highways could have occurred from following first-best investment criteria when second-best criteria were appropriate.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:622-632
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    Cited by:

    1. Arnott, Richard, 2007. "Congestion tolling with agglomeration externalities," Journal of Urban Economics, Elsevier, vol. 62(2), pages 187-203, September.
    2. Kraus, Marvin, 2003. "A new look at the two-mode problem," Journal of Urban Economics, Elsevier, vol. 54(3), pages 511-530, November.
    3. Anas, Alex & Rhee, Hyok-Joo, 2006. "Curbing excess sprawl with congestion tolls and urban boundaries," Regional Science and Urban Economics, Elsevier, vol. 36(4), pages 510-541, July.
    4. Kidokoro, Yukihiro, 2010. "Revenue recycling within transport networks," Journal of Urban Economics, Elsevier, vol. 68(1), pages 46-55, July.
    5. Arnott, Richard & Inci, Eren, 2006. "An integrated model of downtown parking and traffic congestion," Journal of Urban Economics, Elsevier, vol. 60(3), pages 418-442, November.
    6. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.
    7. Arnott, Richard & Inci, Eren & Rowse, John, 2015. "Downtown curbside parking capacity," Journal of Urban Economics, Elsevier, vol. 86(C), pages 83-97.
    8. Conrad, Klaus, 1994. "Traffic, Transportation, Infrastructure and Externalities : a Theoretical Framework for a CGE Analysis," Discussion Papers 504, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    9. Victor Couture & Gilles Duranton & Matthew A. Turner, 2016. "Speed," Sciences Po publications 51, Sciences Po.
    10. 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.
    11. 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.
    12. Lindsey, Robin, 2012. "Road pricing and investment," Economics of Transportation, Elsevier, vol. 1(1), pages 49-63.
    13. 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.
    14. Ingram, Gregory K. & Zhi Liu, 1997. "Motorization and the provision of roads in countries and cities," Policy Research Working Paper Series 1842, The World Bank.
    15. Georgina Santos & Erik Verhoef, 2011. "Road Congestion Pricing," Chapters,in: A Handbook of Transport Economics, chapter 23 Edward Elgar Publishing.
    16. Romilly, Peter, 2004. "Welfare evaluation with a road capacity constraint," Transportation Research Part A: Policy and Practice, Elsevier, vol. 38(4), pages 287-303, May.
    17. 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.
    18. 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.
    19. Erik T. Verhoef & Herbert Mohring, 2007. "Self-Financing Roads," Tinbergen Institute Discussion Papers 07-068/3, Tinbergen Institute.
    20. Richard Arnott, 1985. "Quelques résultats relatifs à l'analyse économique des flux de trafic non stationnaires," Revue Économique, Programme National Persée, vol. 36(1), pages 11-44.
    21. Beaudoin, Justin & Farzin, Y. Hossein & Lin Lawell, C.-Y. Cynthia, 2015. "Public transit investment and sustainable transportation: A review of studies of transit's impact on traffic congestion and air quality," Research in Transportation Economics, Elsevier, vol. 52(C), pages 15-22.
    22. Anas, Alex & Timilsina, Govinda R., 2015. "Offsetting the CO2 locked-in by roads: Suburban transit and core densification as antidotes," Economics of Transportation, Elsevier, vol. 4(1), pages 37-49.
    23. Arnott, Richard & Rowse, John, 2009. "Downtown parking in auto city," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 1-14, January.

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