Abstract
Tradable credit schemes offer a potentially efficient, revenue-neutral policy alternative to classical dynamic pricing of congestion externalities. We show in this paper that the resulting equilibrium may not be unique for particular models of congestion, including the first-best solution for the conventional Vickrey's bottleneck model. This can have substantial detrimental impacts on social welfare and social acceptance of tradable credit schemes. The reason underlying this result is that the credit supply-demand condition can be satisfied for a continuum of credit prices. This is because any marginal change in the credit price will be matched by a compensating change in queuing times, keeping user price fixed but deviating from the first-best optimum in which no queueing should occur. We find that the problem of non-uniqueness does not occur for the dynamic flow congestion model proposed by Chu. A unique equilibrium can be obtained in the bottleneck model if the buying and selling of credits with a bank is allowed, against a pre-determined price. Credits are then still tradable so that the use can deviate from the initial distribution, but the credit price is determined by the perfectly elastic demand and supply from the bank.
| Original language | English |
|---|---|
| Pages (from-to) | 225-236 |
| Number of pages | 12 |
| Journal | Transportation Research Part B: Methodological |
| Volume | 127 |
| Early online date | 29 Jul 2019 |
| DOIs | |
| Publication status | Published - Sep 2019 |
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Keywords
- Non-uniqueness
- Road pricing
- Tradable credits
- Tradable permits
- Traffic congestion
Cite this
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Regulating dynamic congestion externalities with tradable credit schemes : Does a unique equilibrium exist? / Bao, Yue; Verhoef, Erik T.; Koster, Paul.
In: Transportation Research Part B: Methodological, Vol. 127, 09.2019, p. 225-236.Research output: Contribution to Journal › Article › Academic › peer-review
TY - JOUR
T1 - Regulating dynamic congestion externalities with tradable credit schemes
T2 - Does a unique equilibrium exist?
AU - Bao, Yue
AU - Verhoef, Erik T.
AU - Koster, Paul
PY - 2019/9
Y1 - 2019/9
N2 - Tradable credit schemes offer a potentially efficient, revenue-neutral policy alternative to classical dynamic pricing of congestion externalities. We show in this paper that the resulting equilibrium may not be unique for particular models of congestion, including the first-best solution for the conventional Vickrey's bottleneck model. This can have substantial detrimental impacts on social welfare and social acceptance of tradable credit schemes. The reason underlying this result is that the credit supply-demand condition can be satisfied for a continuum of credit prices. This is because any marginal change in the credit price will be matched by a compensating change in queuing times, keeping user price fixed but deviating from the first-best optimum in which no queueing should occur. We find that the problem of non-uniqueness does not occur for the dynamic flow congestion model proposed by Chu. A unique equilibrium can be obtained in the bottleneck model if the buying and selling of credits with a bank is allowed, against a pre-determined price. Credits are then still tradable so that the use can deviate from the initial distribution, but the credit price is determined by the perfectly elastic demand and supply from the bank.
AB - Tradable credit schemes offer a potentially efficient, revenue-neutral policy alternative to classical dynamic pricing of congestion externalities. We show in this paper that the resulting equilibrium may not be unique for particular models of congestion, including the first-best solution for the conventional Vickrey's bottleneck model. This can have substantial detrimental impacts on social welfare and social acceptance of tradable credit schemes. The reason underlying this result is that the credit supply-demand condition can be satisfied for a continuum of credit prices. This is because any marginal change in the credit price will be matched by a compensating change in queuing times, keeping user price fixed but deviating from the first-best optimum in which no queueing should occur. We find that the problem of non-uniqueness does not occur for the dynamic flow congestion model proposed by Chu. A unique equilibrium can be obtained in the bottleneck model if the buying and selling of credits with a bank is allowed, against a pre-determined price. Credits are then still tradable so that the use can deviate from the initial distribution, but the credit price is determined by the perfectly elastic demand and supply from the bank.
KW - Non-uniqueness
KW - Road pricing
KW - Tradable credits
KW - Tradable permits
KW - Traffic congestion
UR - http://www.scopus.com/inward/record.url?scp=85069874129&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85069874129&partnerID=8YFLogxK
U2 - 10.1016/j.trb.2019.07.012
DO - 10.1016/j.trb.2019.07.012
M3 - Article
VL - 127
SP - 225
EP - 236
JO - Transportation Research. Part B: Methodological
JF - Transportation Research. Part B: Methodological
SN - 0191-2615
ER -