Pricing, Capacity Choice, and Financing in Transportation Networks

Abstract

This paper explores the interrelations between pricing, capacity choice and financing in transportation networks. It builds on the famous Mohring-Harwitz result on self-financing of optimally designed roads under optimal congestion pricing, and specifically investigates its ins and outs in a network environment and under various types of second-best regulation. The paper develops a small network model, with endogenous car-ownership, in order to study these questions both from an analytical and a numerical viewpoint. It is for instance shown that application of the principle over an entire network may cause user prices to increase more strongly in initially mildly congested areas compared to heavily congested areas, and that a flat kilometre charge, provided accompanied with optimal capacity policies, may result in first-best efficiency gains.