Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232418 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8821
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
People who anticipate the introduction of a policy can adapt their behavior, perhaps in ways that make the policy ineffective and exacerbate the problem to be addressed. This paper develops a political economy model to study strategic behavior related to the introduction of congestion policies, focusing on tradeable driving permits and congestion tolls. We have the following results. First, anticipatory behavior after the policies are announced but prior to their introduction may make both congestion policies welfare-reducing. Second, drivers will oppose the policies even when they receive all permits for free, or toll revenues are distributed to drivers only. As a consequence, strategic behavior makes it more difficult to get a political majority to support both congestion policies. Third, in an infinite horizon setting, tradable permits are superior to congestion tolls in that they avoid strategic behavior once the system is implemented. In contrast, with congestion tolls the steady-state equilibrium implies continuing strategic behavior. Drivers will always strictly prefer a permit system over congestion tolls as long as they receive a sufficient share of the permits for free.
Subjects: 
anticipatory behaviour
political economy
congestion tolls
tradeable driving permits
strategic behavior
JEL: 
H23
R41
R48
P16
Document Type: 
Working Paper
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