Preference heterogeneity and congestion pricing: The two route case revisited

Paul Koster, Erik Verhoef, Simon Shepherd, David Watling

Research output: Contribution to JournalArticleAcademicpeer-review

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.

Original languageEnglish
Pages (from-to)137-157
Number of pages21
JournalTransportation Research Part B: Methodological
Volume117
Issue numberPart A
DOIs
Publication statusPublished - Nov 2018

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pricing
Costs
welfare
Group
Travel time
low income
travel
demand
time

Keywords

  • Preference heterogeneity
  • Probabilistic choice
  • Scale heterogeneity
  • Second-best congestion pricing
  • Stochastic user equilibrium

Cite this

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title = "Preference heterogeneity and congestion pricing: The two route case revisited",
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.",
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Preference heterogeneity and congestion pricing : The two route case revisited. / Koster, Paul; Verhoef, Erik; Shepherd, Simon; Watling, David.

In: Transportation Research Part B: Methodological, Vol. 117, No. Part A, 11.2018, p. 137-157.

Research output: Contribution to JournalArticleAcademicpeer-review

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N2 - 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.

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