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Congestion Pricing: A Mechanism Design Approach

Author

Listed:
  • C.-Philipp Heller
  • Johannes Johnen
  • Sebastian Schmitz

Abstract

We study traffic congestion as a mechanism design problem by analysing the allocation of drivers to a congestible road. Drivers have private information about their value of time (VOT). With a finite number of drivers, the efficient allocation depends on drivers’ VOT and is ex-ante unknown. Thus, setting a single Pigouvian price is generally not optimal. Nevertheless, the regulator can implement the efficient allocation with a Vickrey-Clarke-Groves payment rule: drivers pay for road access but also for faster travel. Our mechanism sets this price correctly without prior knowledge of the distribution of drivers’ VOT.

Suggested Citation

  • C.-Philipp Heller & Johannes Johnen & Sebastian Schmitz, 2019. "Congestion Pricing: A Mechanism Design Approach," Journal of Transport Economics and Policy, University of Bath, vol. 53(1), pages 74-7-98.
    • Handle: RePEc:tpe:jtecpo:2019:53:1:74--98
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    File URL: https://www.jstor.org/stable/90026261
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    Cited by:

    1. Lingbo Huang & Tracy Xiao Liu & Jun Zhang, 2023. "Born to wait? A study on allocation rules in booking systems," Discussion Papers 2023-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Tefera, Yared Deribe & Awoke, Bisrat G. & Daum, Thomas, 2025. "What factors are inducing or impeding the adoption of agricultural mechanization? Revisiting farm scale, overhead capital and spatial divergence," World Development Perspectives, Elsevier, vol. 38(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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