Preference heterogeneity and congestion pricing: The two route case revisited. (November 2018)

• Record Type: Journal Article
• Authors: Koster, Paul; Verhoef, Erik; Shepherd, Simon; Watling, David
• Is Part Of: Transportation research. Volume 117(2018)Part A
• Page Start: 137
• Page End: 157
• Publication Date: 2018-11
• Subjects: Stochastic user equilibrium -- Second-best congestion pricing -- Preference heterogeneity -- Scale heterogeneity -- Probabilistic choice; Transportation -- Research -- Periodicals; Transportation -- Mathematical models -- Periodicals
• DOI: 10.1016/j.trb.2018.08.010
• Languages: English
• ISSNs: 0191-2615

Abstract

Highlights: We study pricing of an externality in the presence of observed and unobserved preference heterogeneity. Analytical first-best and second-best taxes are derived and new insights on distributional impacts of congestion pricing are obtained. We show that in some circumstances the welfare losses resulting from the inability to differentiate tolls between groups are very low. Furthermore, we show that there are cases where all groups benefit from congestion pricing. However, these cases are likely to be political unacceptable because low income travellers pay a higher tax. Abstract: This paper studies first-best and second-best congestion pricing in the presence of unobserved and observed preference heterogeneity using a stylised stochastic user equilibrium choice model. Travellers choose between multiple alternatives, have heterogeneous values of travel times, and may differ in their valuation of variety. We derive first-best and second-best tolls taking into account how the overall network demand responds to expected generalized prices, including tolls. For second-best pricing, we show that with homogeneous values of times the welfare losses of second-best pricing are smaller when route choice is probabilistic than when route choice is deterministic. Furthermore, we find that with heterogeneous values of times and benefits of variety, uniform second-best tolls and group-differentiated tolls can be very close, implying potentially low welfare losses from the inability to differentiate tolls. Finally, we show that there are cases where all groups benefit from second-best congestion pricing, but that these cases are likely to be politically unacceptable because tolls are then higher for low income groups.