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Congestion Pricing: A Mechanism Design Approach

Author

Listed:
  • C.-Philipp Heller

    (Humboldt-Universitaet zu Berlin)

  • Johannes Johnen

    (European School of Management and Technology)

  • Sebastian Schmitz

    (Freie Universitae Berlin)

Abstract

We study road congestion as a mechanism design problem. In our basic model we analyze the allocation of a set of drivers among two roads, one of which may be congested. An additional driver on the congestible road imposes an externality on the other drivers by increasing their travel time. Each driver is privately informed about her value of time and asked to report that value to the mechanism designer, who assigns drivers to roads. With a nite number of drivers, there is aggregate uncertainty and the efficient allocation is ex ante unknown. Setting a single Pigouvian price is then not optimal. However, the efficient allocation is implementable by a Vickrey-Clarke-Groves price schedule that lets each driver pay the externality she imposes on other drivers. This allows drivers to pay to have other drivers use the slow road instead of the congestible road. As the number of drivers becomes large, there is a single optimal Pigouvian price that leads to an efficient allocation. However, finding this price requires the mechanism designer to either know the precise distribution of the value of time or the use of our mechanism. We analyze some extensions and apply our model to various congestion problems arising in other contexts. Creation Date: 2015-06-26

Suggested Citation

  • C.-Philipp Heller & Johannes Johnen & Sebastian Schmitz, "undated". "Congestion Pricing: A Mechanism Design Approach," BDPEMS Working Papers 2015008, Berlin School of Economics.
    • Handle: RePEc:bdp:wpaper:2015008
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    References listed on IDEAS

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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.

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    More about this item

    Keywords

    Mechanism Design; Congestion Pricing; VCG Mechanism; Externalities; Value of Time;
    All these keywords.

    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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