Toll Competition in Transport Networks

Road pricing has received increasing attention over the past decades, both in the academic literature and in transport policy circles. Undoubtedly, this is motivated on the one hand by the increasing need for pricing as an effective instrument to curb growing transport-related problems such as congestion and emissions, and on the other by technical advances that make the implementation of road pricing a realistic policy scenario rather than a primarily academic curiosum. Some recent examples are, of course, schemes as implemented in London and Stockholm. The actual implementation of road pricing poses new questions to transport economists; that is, the textbook model of road pricing in which a single government controls a single uniform road with identical road users under stationary traffic conditions may be a great educational tool to explain the basic economic insights into the nature of external costs and how Pigouvian charges could optimise these; it is less helpful when facing the task of designing actual road-pricing policies that will have to operate in a reality that is, evidently, much more complex than the stylised world of a simple two-dimensional diagram. This has inspired various scholars to contribute to a rapidly evolving literature on secondbest road pricing that has amply demonstrated that such complexities may sometimes drastically affect optimal policy rules and their welfare consequences.