IDEAS home Printed from https://ideas.repec.org/p/tor/tecipa/tecipa-548.html
   My bibliography  Save this paper

Pareto Improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways

Author

Listed:
  • Jonathan D. Hall

Abstract

This paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a Pareto improvement even before the resulting revenue is spent. I obtain this new result by extending a standard dynamic congestion model to reflect an important additional traffic externality recently identified by transportation engineers: additional traffic does not simply increase travel times, but also introduces frictions that reduce throughput. In particular, I show that as long as some rich drivers use the highway at the peak of rush hour, then adding tolls to a portion of the lanes yields a Pareto improvement. To confirm the relevance of this theoretical possibility in practice, I use survey and travel time data to estimate the joint distribution of driver preferences over arrival time, travel time, and tolls, and use these results to estimate the effects of adding optimal time-varying tolls. I find that adding tolls on up to half of the lanes yields a Pareto improvement, and that the social welfare gains of doing so are substantial—up to $1,740 per road user per year.

Suggested Citation

  • Jonathan D. Hall, 2015. "Pareto Improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways," Working Papers tecipa-548, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-548
    as

    Download full text from publisher

    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-548.pdf
    File Function: Main Text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fosgerau, Mogens & Small, Kenneth A., 2013. "Hypercongestion in downtown metropolis," Journal of Urban Economics, Elsevier, vol. 76(C), pages 122-134.
    2. Braid, Ralph M., 1996. "Peak-Load Pricing of a Transportation Route with an Unpriced Substitute," Journal of Urban Economics, Elsevier, vol. 40(2), pages 179-197, September.
    3. Leclercq, Ludovic & Laval, Jorge A. & Chiabaut, Nicolas, 2011. "Capacity drops at merges: An endogenous model," Transportation Research Part B: Methodological, Elsevier, vol. 45(9), pages 1302-1313.
    4. Robin Lindsey, 2006. "Do Economists Reach A Conclusion on Road Pricing? The Intellectual History of an Idea," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 292-379, May.
    5. Hymel, Kent, 2009. "Does traffic congestion reduce employment growth?," Journal of Urban Economics, Elsevier, vol. 65(2), pages 127-135, March.
    6. Gilles Duranton & Matthew A. Turner, 2011. "The Fundamental Law of Road Congestion: Evidence from US Cities," American Economic Review, American Economic Association, vol. 101(6), pages 2616-2652, October.
    7. Arnott, Richard, 2013. "A bathtub model of downtown traffic congestion," Journal of Urban Economics, Elsevier, vol. 76(C), pages 110-121.
    8. Cassidy, Michael J. & Rudjanakanoknad, Jittichai, 2005. "Increasing the capacity of an isolated merge by metering its on-ramp," Transportation Research Part B: Methodological, Elsevier, vol. 39(10), pages 896-913, December.
    9. Muñoz, Juan Carlos & Daganzo, Carlos F., 2002. "The bottleneck mechanism of a freeway diverge," Transportation Research Part A: Policy and Practice, Elsevier, vol. 36(6), pages 483-505, July.
    10. Janet Currie & Reed Walker, 2011. "Traffic Congestion and Infant Health: Evidence from E-ZPass," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 65-90, January.
    11. G. F. Newell, 1988. "Traffic Flow for the Morning Commute," Transportation Science, INFORMS, vol. 22(1), pages 47-58, February.
    12. Arnott, Richard & Inci, Eren, 2010. "The stability of downtown parking and traffic congestion," Journal of Urban Economics, Elsevier, vol. 68(3), pages 260-276, November.
    13. Evans, Alan W, 1992. "Road Congestion: The Diagrammatic Analysis: Comment," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 211-217, February.
    14. De Meza, David & Gould, J R, 1987. "Free Access versus Private Property in a Resource: Income Distributions Compared," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1317-1325, December.
    15. Liu, Louie Nan & McDonald, John F., 1998. "Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model," Journal of Urban Economics, Elsevier, vol. 44(3), pages 352-366, November.
    16. Verhoef, Erik T., 2005. "Speed-flow relations and cost functions for congested traffic: Theory and empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(7-9), pages 792-812.
    17. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-179, March.
    18. Verhoef, Erik T., 1999. "Time, speeds, flows and densities in static models of road traffic congestion and congestion pricing," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 341-369, May.
    19. Small, Kenneth A., 1992. "Using the Revenues from Congestion Pricing," University of California Transportation Center, Working Papers qt32p9m3mm, University of California Transportation Center.
    20. Tyler Patterson & David Levinson, 2008. "Lexus Lanes or Corolla Lanes? Spatial Use and Equity Patterns on the I-394 MnPASS Lanes," Working Papers 000051, University of Minnesota: Nexus Research Group.
    21. Lei Zhang & David Levinson, 2004. "Some Properties of Flows at Freeway Bottlenecks," Working Papers 200403, University of Minnesota: Nexus Research Group.
    22. Chung, Koohong & Rudjanakanoknad, Jittichai & Cassidy, Michael J., 2007. "Relation between traffic density and capacity drop at three freeway bottlenecks," Transportation Research Part B: Methodological, Elsevier, vol. 41(1), pages 82-95, January.
    23. Gordon F. Newell, 1987. "The Morning Commute for Nonidentical Travelers," Transportation Science, INFORMS, vol. 21(2), pages 74-88, May.
    24. van den Berg, Vincent & Verhoef, Erik T., 2011. "Winning or losing from dynamic bottleneck congestion pricing?: The distributional effects of road pricing with heterogeneity in values of time and schedule delay," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 983-992, August.
    25. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1990. "Economics of a bottleneck," Journal of Urban Economics, Elsevier, vol. 27(1), pages 111-130, January.
    26. Cassidy, Michael J. & Bertini, Robert L., 1999. "Some traffic features at freeway bottlenecks," Transportation Research Part B: Methodological, Elsevier, vol. 33(1), pages 25-42, February.
    27. Verhoef, Erik T., 2001. "An Integrated Dynamic Model of Road Traffic Congestion Based on Simple Car-Following Theory: Exploring Hypercongestion," Journal of Urban Economics, Elsevier, vol. 49(3), pages 505-542, May.
    28. Small, Kenneth A., 1983. "The incidence of congestion tolls on urban highways," Journal of Urban Economics, Elsevier, vol. 13(1), pages 90-111, January.
    29. Chris Hendrickson & George Kocur, 1981. "Schedule Delay and Departure Time Decisions in a Deterministic Model," Transportation Science, INFORMS, vol. 15(1), pages 62-77, February.
    30. Abrantes, Pedro A.L. & Wardman, Mark R., 2011. "Meta-analysis of UK values of travel time: An update," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(1), pages 1-17, January.
    31. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Differentiated Road Pricing, Express Lanes and Carpools: Exploiting Heterogeneous Preferences in Policy Design," Working Papers 050616, University of California-Irvine, Department of Economics, revised Mar 2006.
    32. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Uncovering the Distribution of Motorists' Preferences for Travel Time and Reliability," Econometrica, Econometric Society, vol. 73(4), pages 1367-1382, July.
    33. Rudjanakanoknad, Jittichai, 2005. "Increasing Freeway Merge Capacity Through On-Ramp Metering," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt3js9x18d, Institute of Transportation Studies, UC Berkeley.
    34. Lave, Charles, 1994. "The demand curve under road pricing and the problem of political feasibility," Transportation Research Part A: Policy and Practice, Elsevier, vol. 28(2), pages 83-91, March.
    35. Joseph Stiglitz, 1998. "Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 3-22, Spring.
    36. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    37. Lave, Charles, 1994. "The Demand Curve Under Road Pricing and the Problem of Political Feasibility," University of California Transportation Center, Working Papers qt5165m7jr, University of California Transportation Center.
    38. Jonathan D. Hall, 2017. "Improving the fit of structural models of congestion," Working Papers tecipa-590, University of Toronto, Department of Economics.
    39. Light, Thomas, 2009. "Optimal highway design and user welfare under value pricing," Journal of Urban Economics, Elsevier, vol. 66(2), pages 116-124, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:oup:oxford:v:33:y:2017:i:4:p:541-571. is not listed on IDEAS
    2. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press, vol. 33(4), pages 541-571.
    3. Takayama, Yuki & Kuwahara, Masao, 2017. "Bottleneck congestion and residential location of heterogeneous commuters," Journal of Urban Economics, Elsevier, vol. 100(C), pages 65-79.
    4. Vincent A.C. van den Berg & Erik T. Verhoef, 2015. "Robot Cars and Dynamic Bottleneck Congestion: The Effects on Capacity, Value of Time and Preference Heterogeneity," Tinbergen Institute Discussion Papers 15-062/VIII, Tinbergen Institute, revised 11 Jul 2016.
    5. van den Berg, Vincent A.C., 2014. "Coarse tolling with heterogeneous preferences," Transportation Research Part B: Methodological, Elsevier, vol. 64(C), pages 1-23.

    More about this item

    Keywords

    Congestion pricing; Value pricing; Pareto improvement;

    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

    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:tor:tecipa:tecipa-548. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer) or () or (). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.