Second-Best Congestion Pricing in General Networks

This paper considers the second-best problem where not all links of a congested transportation network can be tolled. The paper builds on earlier work, in which the secondbest tax rule for this problem was derived for general static networks, so that the solution presented is valid for any graph of the network, and for any set of tolling points available on that network. An algorithm is presented for finding second-best tolls, based on this general solution. A simulation model is used for studying its performance for various archetype pricing schemes: a toll-cordon, area licences, parking policies in the city centre, pricing of a single major highway, and pay-lanes and ‘free-lanes’ on major highways. Furthermore, an exploratory analysis is given of a method for selecting the optimal location of toll points in case not all links can be tolled. The author is affiliated to the Tinbergen Institute, Keizersgracht 482, 1017 EG Amsterdam. The research of Erik Verhoef has been made possible by a fellowship of the Royal Netherlands Academy of Arts and Sciences.