Abstract
We study the efficiency of private supply of roads under demand uncertainty and evaluate various regulatory policies. Due to demand uncertainty, capacity is decided before demand is known but tolls can be adjusted after demand is known. Policy implications can differ from those under deterministic demand. For instance, for serial links, the toll in the second-best zero-profit case is no longer equal to the marginal external congestion cost. In the first-best scenario, the capacity under uncertain demand is higher than that under deterministic demand of the same expected value, though self-financing still holds in expected terms. Regulation by perfect competitive auction cannot replicate the second-best zero-profit result and thus leads to a lower welfare, whereas without uncertainty, various forms of competitive auctions can attain this second-best optimum. For more complex networks, when private firms add capacity in turn, contrary to the case without demand uncertainty, some forms of auction perform better than others with demand uncertainty.
| Original language | English |
|---|---|
| Pages (from-to) | 57-68 |
| Journal | Research in Transportation Economics |
| Volume | 70 |
| DOIs | |
| Publication status | Published - 2018 |
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Keywords
- Auction
- Private supply
- Road network
- Road pricing
- Traffic congestion
- Uncertain demand
- Uncertainty
Cite this
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Private road networks with uncertain demand. / Fu, Xinying; van den Berg, Vincent A.C.; Verhoef, Erik T.
In: Research in Transportation Economics, Vol. 70, 2018, p. 57-68.Research output: Contribution to Journal › Article › Academic › peer-review
TY - JOUR
T1 - Private road networks with uncertain demand
AU - Fu, Xinying
AU - van den Berg, Vincent A.C.
AU - Verhoef, Erik T.
PY - 2018
Y1 - 2018
N2 - We study the efficiency of private supply of roads under demand uncertainty and evaluate various regulatory policies. Due to demand uncertainty, capacity is decided before demand is known but tolls can be adjusted after demand is known. Policy implications can differ from those under deterministic demand. For instance, for serial links, the toll in the second-best zero-profit case is no longer equal to the marginal external congestion cost. In the first-best scenario, the capacity under uncertain demand is higher than that under deterministic demand of the same expected value, though self-financing still holds in expected terms. Regulation by perfect competitive auction cannot replicate the second-best zero-profit result and thus leads to a lower welfare, whereas without uncertainty, various forms of competitive auctions can attain this second-best optimum. For more complex networks, when private firms add capacity in turn, contrary to the case without demand uncertainty, some forms of auction perform better than others with demand uncertainty.
AB - We study the efficiency of private supply of roads under demand uncertainty and evaluate various regulatory policies. Due to demand uncertainty, capacity is decided before demand is known but tolls can be adjusted after demand is known. Policy implications can differ from those under deterministic demand. For instance, for serial links, the toll in the second-best zero-profit case is no longer equal to the marginal external congestion cost. In the first-best scenario, the capacity under uncertain demand is higher than that under deterministic demand of the same expected value, though self-financing still holds in expected terms. Regulation by perfect competitive auction cannot replicate the second-best zero-profit result and thus leads to a lower welfare, whereas without uncertainty, various forms of competitive auctions can attain this second-best optimum. For more complex networks, when private firms add capacity in turn, contrary to the case without demand uncertainty, some forms of auction perform better than others with demand uncertainty.
KW - Auction
KW - Private supply
KW - Road network
KW - Road pricing
KW - Traffic congestion
KW - Uncertain demand
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85048778084&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85048778084&partnerID=8YFLogxK
U2 - 10.1016/j.retrec.2018.06.003
DO - 10.1016/j.retrec.2018.06.003
M3 - Article
VL - 70
SP - 57
EP - 68
JO - Research in Transportation Economics
JF - Research in Transportation Economics
SN - 0739-8859
ER -