IDEAS home Printed from https://ideas.repec.org/p/ema/worpap/2022-06.html
   My bibliography  Save this paper

Tolls vs tradable permits for managing travel on a bimodal congested network with variable capacities and demands

Author

Listed:
  • Robin Lindsey
  • André de Palma
  • Pouya Rezaeini

    (Université de Cergy-Pontoise, THEMA)

Abstract

Congestion pricing has long been considered an efficient tool for tackling road traffic congestion, but tolls are generally unpopular. Interest is growing in tradable permits as an alternative. Tolls and tradable permits are interchangeable if travel conditions are unchanging, but not if conditions vary and tolls and permit quantities are inflexible and cannot be adapted to current conditions. We compare the allocative efficiency of tolls and tradable permits on a bimodal network under uncertainty. Road links are congestion prone and public transit may be crowded. Road traffic entering a cordon area around the downtown is controlled using either a toll or a tradable permit. Two groups of travelers can drive or take transit. Group 1 travels downtown, and if it drives it must either pay the toll or use a permit. Group 2 travels to a suburb, and can avoid the cordon by taking a bypass. All demand and cost parameters of the model can vary, either systematically or irregularly. Each parameter combination constitutes a state. Travelers learn the state in advance, and adapt their mode and route choices accordingly. A planner minimizes expected total travel costs by either setting the level of the toll or choosing the quota of permits to distribute. Two cases are considered. In the first, the toll and quota are flexible and can be adjusted to daily travel conditions. In the second, the instruments are inflexible and must be set at the same level regardless of the state. If travelers have identical preferences, the optimal flexible toll is invariant to the numbers of travelers in each group and the capacity of the link entering the cordon. The toll is robust in the sense that inflexibility causes no welfare loss if these parameters vary. By contrast, the quota is not robust. We derive a general rule for ranking the efficiency of a fixed toll and fixed quota. We then explore a numerical example. In most instances, the fixed toll outperforms the fixed quota by a significant margin although the quota can do better in some states. We also compare the welfare-distributional effects of tolls and permits, and find that suburban travelers fare better than downtown travelers from both forms of regulation.

Suggested Citation

  • Robin Lindsey & André de Palma & Pouya Rezaeini, 2022. "Tolls vs tradable permits for managing travel on a bimodal congested network with variable capacities and demands," THEMA Working Papers 2022-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2022-06
    as

    Download full text from publisher

    File URL: http://thema.u-cergy.fr/IMG/pdf/2022-06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lam, William H.K. & Shao, Hu & Sumalee, Agachai, 2008. "Modeling impacts of adverse weather conditions on a road network with uncertainties in demand and supply," Transportation Research Part B: Methodological, Elsevier, vol. 42(10), pages 890-910, December.
    2. Lindsey, Robin, 2011. "State-dependent congestion pricing with reference-dependent preferences," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1501-1526.
    3. Shaun Larcom & Ferdinand Rauch & Tim Willems, 2017. "The Benefits of Forced Experimentation: Striking Evidence from the London Underground Network," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 2019-2055.
    4. Czerny, Achim I., 2010. "Airport congestion management under uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 371-380, March.
    5. André de Palma & Robin Lindsey & Emile Quinet & Robert Vickerman, 2011. "Handbook Of Transport Economics," PSE-Ecole d'économie de Paris (Postprint) halshs-00754912, HAL.
    6. Krabbenborg, Lizet & Molin, Eric & Annema, Jan Anne & van Wee, Bert, 2020. "Public frames in the road pricing debate: A Q-methodology study," Transport Policy, Elsevier, vol. 93(C), pages 46-53.
    7. de Palma, André & Lindsey, Robin, 2020. "Tradable permit schemes for congestible facilities with uncertain supply and demand," Economics of Transportation, Elsevier, vol. 21(C).
    8. De Borger, Bruno & Russo, Antonio, 2018. "The political economy of cordon tolls," Journal of Urban Economics, Elsevier, vol. 105(C), pages 133-148.
    9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    10. Nico Dogterom & Dick Ettema & Martin Dijst, 2017. "Tradable credits for managing car travel: a review of empirical research and relevant behavioural approaches," Transport Reviews, Taylor & Francis Journals, vol. 37(3), pages 322-343, May.
    11. Nicholson, Alan & Du, Zhen-Ping, 1997. "Degradable transportation systems: An integrated equilibrium model," Transportation Research Part B: Methodological, Elsevier, vol. 31(3), pages 209-223, June.
    12. Amit Agarwal & Benjamin Kickhöfer, 2018. "The correlation of externalities in marginal cost pricing: lessons learned from a real-world case study," Transportation, Springer, vol. 45(3), pages 849-873, May.
    13. Gardner, Lauren M. & Boyles, Stephen D. & Waller, S. Travis, 2011. "Quantifying the benefit of responsive pricing and travel information in the stochastic congestion pricing problem," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 204-218, March.
    14. Verhoef, Erik T. & Emmerink, Richard H. M. & Nijkamp, Peter & Rietveld, Piet, 1996. "Information provision, flat and fine congestion tolling and the efficiency of road usage," Regional Science and Urban Economics, Elsevier, vol. 26(5), pages 505-529, August.
    15. de Palma, André & Kilani, Moez & Lindsey, Robin, 2005. "Congestion pricing on a road network: A study using the dynamic equilibrium simulator METROPOLIS," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(7-9), pages 588-611.
    16. André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), 2011. "A Handbook of Transport Economics," Books, Edward Elgar Publishing, number 12679.
    17. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    18. Ravi Seshadri & André de Palma & Moshe Ben-Akiva, 2021. "Congestion Tolling−Dollars versus Tokens: Within-day Dynamics," THEMA Working Papers 2021-12, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    19. Emmerink, Richard H M, et al, 1998. "Information Effects in Transport with Stochastic Capacity and Uncertainty Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 89-110, February.
    20. Chen, Anthony & Yang, Hai & Lo, Hong K. & Tang, Wilson H., 2002. "Capacity reliability of a road network: an assessment methodology and numerical results," Transportation Research Part B: Methodological, Elsevier, vol. 36(3), pages 225-252, March.
    21. van Exel, N. Job A. & Rietveld, Piet, 2001. "Public transport strikes and traveller behaviour," Transport Policy, Elsevier, vol. 8(4), pages 237-246, October.
    22. Susan Grant-Muller & Meng Xu, 2014. "The Role of Tradable Credit Schemes in Road Traffic Congestion Management," Transport Reviews, Taylor & Francis Journals, vol. 34(2), pages 128-149, March.
    23. Fan, Wenbo & Jiang, Xinguo, 2013. "Tradable mobility permits in roadway capacity allocation: Review and appraisal," Transport Policy, Elsevier, vol. 30(C), pages 132-142.
    24. de Palma, André & Proost, Stef & Seshadri, Ravi & Ben-Akiva, Moshe, 2018. "Congestion tolling - dollars versus tokens: A comparative analysis," Transportation Research Part B: Methodological, Elsevier, vol. 108(C), pages 261-280.
    25. Russo, Antonio & Adler, Martin W. & Liberini, Federica & van Ommeren, Jos N., 2021. "Welfare losses of road congestion: Evidence from Rome," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    26. E Verhoef & P Nijkamp & P Rietveld, 1997. "Tradeable Permits: Their Potential in the Regulation of Road Transport Externalities," Environment and Planning B, , vol. 24(4), pages 527-548, August.
    27. Hörcher, Daniel & Tirachini, Alejandro, 2021. "A review of public transport economics," Economics of Transportation, Elsevier, vol. 25(C).
    28. Robin Lindsey & Andre de Palma, 1998. "Information and Usage of Congestible Facilities Under Different Pricing Regimes," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 666-692, August.
    29. Nicholas Rivers & Soodeh Saberian & Brandon Schaufele, 2020. "Public transit and air pollution: Evidence from Canadian transit strikes," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 496-525, May.
    30. Anthony Chen & Chao Yang & Sirisak Kongsomsaksakul & Ming Lee, 2007. "Network-based Accessibility Measures for Vulnerability Analysis of Degradable Transportation Networks," Networks and Spatial Economics, Springer, vol. 7(3), pages 241-256, September.
    31. Bonsall, Peter & Shires, Jeremy & Maule, John & Matthews, Bryan & Beale, Jo, 2007. "Responses to complex pricing signals: Theory, evidence and implications for road pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 41(7), pages 672-683, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Palma, André & Lindsey, Robin, 2020. "Tradable permit schemes for congestible facilities with uncertain supply and demand," Economics of Transportation, Elsevier, vol. 21(C).
    2. Siyu Chen & Ravi Seshadri & Carlos Lima Azevedo & Arun P. Akkinepally & Renming Liu & Andrea Araldo & Yu Jiang & Moshe E. Ben-Akiva, 2021. "Market Design for Tradable Mobility Credits," Papers 2101.00669, arXiv.org, revised Sep 2022.
    3. Dogterom, Nico & Ettema, Dick & Dijst, Martin, 2018. "Behavioural effects of a tradable driving credit scheme: Results of an online stated adaptation experiment in the Netherlands," Transportation Research Part A: Policy and Practice, Elsevier, vol. 107(C), pages 52-64.
    4. Lindsey, Robin & Santos, Georgina, 2020. "Addressing transportation and environmental externalities with economics: Are policy makers listening?," Research in Transportation Economics, Elsevier, vol. 82(C).
    5. Ravi Seshadri & André de Palma & Moshe Ben-Akiva, 2021. "Congestion Tolling−Dollars versus Tokens: Within-day Dynamics," THEMA Working Papers 2021-12, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    6. Candia, Diego & Verhoef, Erik T., 2022. "Tradable mobility permits in a monocentric city with pre-existing labor taxation: A general equilibrium perspective," Transportation Research Part B: Methodological, Elsevier, vol. 163(C), pages 145-165.
    7. Bruno De Borger & Amihai Glazer & Stef Proost, 2021. "Rational Drivers and the Choice Between Congestion Tolls and Tradeable Permits: A Political Economy Model," CESifo Working Paper Series 8821, CESifo.
    8. De Borger, Bruno & Glazer, Amihai & Proost, Stef, 2022. "Strategic behavior under tradeable driving permits and congestion tolls: A political economy model," Journal of Urban Economics, Elsevier, vol. 128(C).
    9. Simon P. Anderson & Régis Renault, 2011. "Price Discrimination," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 22, Edward Elgar Publishing.
    10. Kenneth Small, 2015. "The Bottleneck Model: An Assessment and Interpretation," Working Papers 141506, University of California-Irvine, Department of Economics.
    11. Yu, Xiaojuan & van den Berg, Vincent A.C. & Li, Zhi-Chun, 2023. "Congestion pricing and information provision under uncertainty: Responsive versus habitual pricing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).
    12. Lindsey, Robin, 2012. "Road pricing and investment," Economics of Transportation, Elsevier, vol. 1(1), pages 49-63.
    13. Pouya Rezaeinia & André de Palma & Robin Lindsey, 2021. "TRAFFIC CONGESTION CONTROL: TRADABLE PERMITS vs ROAD TOLLS," THEMA Working Papers 2021-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    14. Fan, Wenbo & Jiang, Xinguo & Erdogan, Sevgi & Sun, Yanshuo, 2016. "Modeling and evaluating FAIR highway performance and policy options," Transport Policy, Elsevier, vol. 48(C), pages 156-168.
    15. Ghafelebashi, Ali & Razaviyayn, Meisam & Dessouky, Maged, 2021. "Congestion Reduction via Personalized Incentives," Institute of Transportation Studies, Working Paper Series qt5b82168n, Institute of Transportation Studies, UC Davis.
    16. Small, Kenneth A., 2015. "The bottleneck model: An assessment and interpretation," Economics of Transportation, Elsevier, vol. 4(1), pages 110-117.
    17. Dogterom, Nico & Ettema, Dick & Dijst, Martin, 2018. "Activity-travel adaptations in response to a tradable driving credits scheme," Transport Policy, Elsevier, vol. 72(C), pages 79-88.
    18. Krabbenborg, Lizet & van Langevelde-van Bergen, Chris & Molin, Eric, 2021. "Public support for tradable peak credit schemes," Transportation Research Part A: Policy and Practice, Elsevier, vol. 145(C), pages 243-259.
    19. Zhang, Anming & Czerny, Achim I., 2012. "Airports and airlines economics and policy: An interpretive review of recent research," Economics of Transportation, Elsevier, vol. 1(1), pages 15-34.
    20. de Palma, André & Proost, Stef & Seshadri, Ravi & Ben-Akiva, Moshe, 2018. "Congestion tolling - dollars versus tokens: A comparative analysis," Transportation Research Part B: Methodological, Elsevier, vol. 108(C), pages 261-280.

    More about this item

    Keywords

    traffic congestion; transit crowding; cordon toll; tradable permits; mode choice; route choice; uncertainty; equity.;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ema:worpap:2022-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stefania Marcassa (email available below). General contact details of provider: https://edirc.repec.org/data/themafr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.