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The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation

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  • Small, Kenneth A.
  • Yan, Jia

Abstract

Some road-pricing demonstrations use “value pricing,” in which travelers can choose between a free but congested roadway and a priced roadway. Recent research has uncovered a potentially serious problem for such demonstrations, second-best tolls may be far lower than those typically charged, and from a welfare perspective, the latter may be worse than not pricing at all. That research, however, assumes that all travelers are identical and it therefore neglects the benefits of product differentiation. Using a model with two user groups, we find that accounting for heterogeneity in value of time as important in evaluating constrained policies, and improves the relative performance of policies that offer differential prices.

Suggested Citation

  • Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
    • Handle: RePEc:cdl:uctcwp:qt9569k1sz
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    References listed on IDEAS

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    1. AndrÊ de Palma & Robin Lindsey, 2000. "Private toll roads: Competition under various ownership regimes," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(1), pages 13-35.
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    More about this item

    Keywords

    Value pricing; congestion pricing; value of time; road pricing; high occupancy/toll lanes; Social and Behavioral Sciences;
    All these keywords.

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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