Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 1999-08-24
Number: 99-066/3
Author-Name: Erik T. Verhoef
Author-Email: everhoef@feweb.vu.nl
Author-Workplace-Name: Vrije Universiteit Amsterdam
Author-Name: Kenneth A. Small
Author-Workplace-Name: University of Irvine at California
Title: Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership
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.
Classification-JEL: R41, R48, D62
Keywords: congestion, road pricing, networks, second-best
File-Url: https://papers.tinbergen.nl/99066.pdf
File-Format: application/pdf
File-Size: 195584 bytes
Handle: RePEc:tin:wpaper:19990066