Jonathan Hall’s recent paper Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways is now available online at https://doi.org/10.1016/j.jpubeco.2018.01.003. It is published by the Journal of Public Economics, Volume 158, February 2018, pp. 113–125.
Highlights and abstract below are copied from the publisher website.
Highlights
- Congestion pricing can help all road users, even before using the revenue.
- Requires time-varying tolls and often requires pricing just some of the lanes.
- Possible if there are some rich drivers are using the road at the peak of rush hour.
Abstract
Though economists have long advocated road pricing as an efficiency-enhancing solution to traffic congestion, it has rarely been implemented, primarily because it is thought to create losers as well as winners. This paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a Pareto improvement before using the revenue, a sufficient condition being that drivers with a high value of time travel at the peak of rush hour. I obtain these new theoretical results by extending a standard dynamic congestion model to reflect an important additional traffic externality: extra traffic does not simply increase travel times, but also introduces frictions that reduce throughput. The analysis draws attention to a practical policy that may help overcome the widespread opposition to road pricing.