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“Cap and Trade” for Congestion Control

  • Alfredo Garcia

    ()

  • Mingyi Hong

    ()

  • Jorge Barrera

    ()

Registered author(s):

    We study a “cap and trade” scheme for congestion control: the planner sets constraints for aggregate utilization on certain critical links in a given network and competitive trading of usage rights in a secondary market is expected to identify over time prices clearing demand for the utilization of the constrained links. If prices in a “cap and trade” scheme stabilize relatively quickly, a social planner can fine-tune the caps for aggregate utilization on critical links. However, it is not clear that prices would necessarily stabilize as users dynamically adjust their route and/or flow choices. In this paper we show that prices and flows (or routes) do stabilize in a “cap and trade” scheme for congestion control when users are assumed to adjust their flow (or route) choices by optimizing vis-à-vis current conditions. A sufficient condition for this result pertains to the relative speed of trading versus users’ adjustments. We find that prices stabilize and flows (or routes) converge to an equilibrium if the pace at which prices are updated is faster than that at which users adjust their decisions. Copyright Springer Science+Business Media, LLC 2012

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    File URL: http://hdl.handle.net/10.1007/s13235-012-0049-4
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    Article provided by Springer in its journal Dynamic Games and Applications.

    Volume (Year): 2 (2012)
    Issue (Month): 3 (September)
    Pages: 280-293

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    Handle: RePEc:spr:dyngam:v:2:y:2012:i:3:p:280-293
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    1. William H. Sandholm, 2002. "Evolutionary Implementation and Congestion Pricing," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 667-689.
    2. Saari, Donald G, 1985. "Iterative Price Mechanisms," Econometrica, Econometric Society, vol. 53(5), pages 1117-31, September.
    3. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    5. Cominetti, Roberto & Melo, Emerson & Sorin, Sylvain, 2010. "A payoff-based learning procedure and its application to traffic games," Games and Economic Behavior, Elsevier, vol. 70(1), pages 71-83, September.
    6. Larsson, Torbjörn & Patriksson, Michael, 1995. "An augmented lagrangean dual algorithm for link capacity side constrained traffic assignment problems," Transportation Research Part B: Methodological, Elsevier, vol. 29(6), pages 433-455, December.
    7. Bala, Venkatesh & Majumdar, Mukul, 1992. "Chaotic Tatonnement," Economic Theory, Springer, vol. 2(4), pages 437-45, October.
    8. William H. Sandholm, 2005. "Negative Externalities and Evolutionary Implementation," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 885-915.
    9. Sandholm, William H, 2002. "Evolutionary Implementation and Congestion Pricing," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 667-89, July.
    10. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May.
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