Book Description

Traffic congestion is costly both in terms of time lost as well as resources squandered. Road infrastructure is also expensive to create and maintain, with current funding mechanisms falling short. While there is strong theoretical support for road pricing solutions they have been sparsely deployed in the United States. We begin with a consideration of the current theory and politics underpinning road pricing. We then turn to empirical examples of two different road pricing mechanisms: one that adapts to traffic conditions in a High Occupancy Toll (HOT) lane and another that imposes a toll varying only by time of day on a bridge. In both cases we will estimate the behavioral response of drivers to toll pricing. In the dynamic pricing context the challenge in estimation lies in the simultaneity of price and demand: the structure of dynamic tolling ensures that prices increase as more drivers enter the HOT lane. Prior research has found that higher prices in HOT lanes increase usage. We find that after controlling for simultaneity HOT drivers instead respond to tolls in a manner consistent with economic theory and that their responses to value of time and value of reliability are very large. The results highlight the importance of both controlling for simultaneity when estimating demand for dynamically priced toll roads and treating HOT lanes with dynamic prices as a differentiated product with bundled attributes. In the time-of-day pricing context we estimate commuters' responses by measuring the shift from the tolled bridge to a parallel free bridge and also how commuters adjust the timing of trips to less expensive periods. We estimate own and cross-price elasticities for the two bridges finding results in line with previous research. We also estimate the time adjustment that commuters make in response to changing toll rates. These estimates allow us to compute the benefits to toll paying commuters from decreased congestion resulting from the imposition of the tolls.