Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85704
Authors: 
Verhoef, Erik T.
Small, Kenneth A.
Year of Publication: 
1999
Series/Report no.: 
Tinbergen Institute Discussion Paper 99-066/3
Abstract: 
We explore the properties of various types of public and private pricing on acongested road network with heterogeneous users and allowing for elasticdemand. Heterogeneity is represented by a continuum of values of time. Thenetwork consists of both serial and parallel links, which allows us to modelsecond-best pricing restrictions on either complementary or substitute links,while still accounting for interaction between different groups on sharedlinks (e.g. in city centres). We find that private (revenue-maximizing)pricing is much less efficient than public pricing, whether on the partial orthe full network; but this difference is mitigated by the productdifferentiation made possible by heterogeneous users. Ignoring heterogeneitycauses the welfare benefits of second-best pricing of one parallel link, apolicy currently receiving favourable consideration, to be dramaticallyunderestimated. Product differentiation produces some unexpecteddistributional effects, including the possibility that first-best pricing canresult in one of the parallel routes being both more congested than withoutpricing.
Subjects: 
congestion
road pricing
networks
second-best
JEL: 
R41
R48
D62
Document Type: 
Working Paper

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