Endogenising demand for information in road transport

In this paper, the impact of endogenous information provision to drivers in road transport is investigated. A static economic equilibrium model is used, which allows potential road users to buy information on the prevailing (stochastic) traffic situation. It takes for granted that an individual will try to acquire proper information when the private benefits of doing so exceed the private costs. By using an information model for road users, the interesting result is found that the provision of endogenous information leads to a strict Pareto improvement. Furthermore, the model shows that — depending on the price of information — it can be efficiency improving to subsidise or tax the motorist information to the user. Finally, there is a relationship between fine congestion pricing and subsidising motorist information. It turns out that the social welfare maximising subsidy under first-best congestion pricing is equal to zero. However, subsidising information may be an attractive policy instrument when a flat congestion pricing scheme is preferred.