Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 15-07-2022
Revision-Data: 28-04-2023
Number: 22-045/VIII
Author-Name: Vincent van den Berg
Author-Workplace-Name: Vrije Universiteit Amsterdam
Title: Self-financing roads under coarse tolling and heterogeneous preferences	
AbstractWe consider whether a road is self-financing under flat or step tolling and optimized capacity
while incorporating preference heterogeneity, bottleneck congestion and linear capacity cost. 
Previous work has shown that a sufficient condition for the toll revenue to equal the capacity cost
is that the toll equals the marginal external costs (MECs) of all types of users at all their travel 
moments. However, under ‘flexibility’ or ‘ratio’ heterogeneity between the value of time (VOT) 
and values of schedule delay, a coarse toll must differ from the heterogeneous MECs. This paper 
derives that the second-best optimal coarse toll will be a weighted average of the MECs, with 
the weights depending on the derivatives of the demand and travel cost functions. The capacity 
rule also has a second-best correction: the capacity is set higher than following the first-best rule
to reduce the distortion from overpricing High-VOT users. This has been ignored in previous 
work and makes self-financing less likely than previously thought, but it can still occur if Low-VOT users are much more price sensitive than High-VOT users. In our numerical model, the 
Low-VOT type must be almost twice as price sensitive as the High-VOT type for there not to be 
a loss, and, typically, there is a 0% to 10% loss. Imposing self-financing only causes a tiny 
welfare loss. We also analyze other forms of heterogeneity: proportional heterogeneity, 
heterogeneity in the preferred arrival time and heterogeneity between values of schedule delay
early and late.
Classification-JEL: R48, D62, H23, R41, 
Keywords: Self-financing, road pricing, flat toll, step toll, coarse toll, heterogeneity, second best	
File-URL: https://papers.tinbergen.nl/22045.pdf
File-Format: application/pdf
File-Size: 766.179 bytes
Handle: RePEc:tin:wpaper:20220045