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Modal choice and optimal congestion

  • Quentin David

    ()

    (CREA, University of Luxembourg)

  • Renaud Foucart

    ()

    (ECARES, Université libre de Bruxelles)

We study the choice of transportation modes within a city where commuters have het- erogeneous preferences for a car. As in standard models of externalities, the market outcome never maximizes aggregate welfare. We show that in the presence of multiple equilibria prob- lems of coordination can worsen this result. Hence, a social planner focusing on the marginal impact of policies may miss the largest source of inefficiency. We discuss two policy tools: taxation and traffic separation (e.g. exclusive lanes for public transportation). Setting the optimal levels of taxation and of traffic separation constitutes a necessary but not a sufficient condition to reach the first best equilibrium. Comparing the relative efficiency of both poli- cies, we show that traffic separation should be preferred for large-scale policies while taxation better applies to marginal modifications of commuting patterns.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 12-03.

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Date of creation: 2012
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Handle: RePEc:luc:wpaper:12-03
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