Second-Best Congestion Pricing Schemes in the Monocentric City
Tinbergen Institute Discussion Paper No. TI 04-110/3
24 Pages Posted: 14 Oct 2004
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: Suggested Citation
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