Second-Best Congestion Pricing Schemes in the Monocentric City

Tinbergen Institute Discussion Paper No. TI 04-110/3

24 Pages Posted: 14 Oct 2004

See all articles by Erik T. Verhoef

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: January 10, 2004

Abstract

This paper considers second-best congestion pricing in the monocentric city, with endogenous residential density and endogenous labour supply. A spatial general equilibrium model is developed that allows consideration of the three-way interactions between urban density, traffic congestion and labour supply. Congestion pricing schemes are analyzed that are second-best 'by design' (and not because distortions exist elsewhere in the spatial economy), like cordon charging and flat kilometre charges. Both for Cobb-Douglas utility and for CES utility, the analyses suggest that the relative welfare losses from second-best pricing, compared to first-best pricing, are surprisingly small.

Keywords: Traffic congestion, second-best pricing, urban structure, spatial general equilibrium

JEL Classification: R41, R48, D62

Suggested Citation

Verhoef, Erik T., Second-Best Congestion Pricing Schemes in the Monocentric City (January 10, 2004). Tinbergen Institute Discussion Paper No. TI 04-110/3, Available at SSRN: https://ssrn.com/abstract=603263 or http://dx.doi.org/10.2139/ssrn.603263

Erik T. Verhoef (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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