Externalities and Taxation/Subsidization Policy of Vehicle Information and Communication System

Hiroaki Miyoshi ()

ERSA conference papers from European Regional Science Association

Abstract: Traffic congestion in urban areas has become serious both in Japan and European countries.This study aims to calculate the optimal penetration level and taxation/subsidization level of VICS. VICS(Vehicle Information and Communication System) is a digital data communication system which promptly provides the latest necessary road traffic information to drivers via car navigation equipment. Drivers can receive real-time road traffic information about congestion and regulation 24 hours a day, 7 days a week. The world's first VICS service started in Japan in April 1996. It is impossible to realize the optimal level of penetration in the market mechanism when a service has technological externalities. VICS must have two type of technological externality. One is positive one-way externality which implies that the higher the level of penetration of VICS, the lower the travel times to the non-equipped drivers because of congestion reducing. The other is negative network externality which implies that a marginal equipped driver adversely affects the already equipped driver by increasing the travel time on alternative routes. Hence taxation or subsidization must be necessary to realize the optimal penetration level of VICS. Many studies explored the effect of market penetrations of PRG(route planning and guidance) on overall system travel time(e.g. Emmerink et al.(1995)). These studies, however, considered market penetration as an exogenous parameter. Recently, Yang (1999) developed the model to calculate the market penetration level endogenously. Lo and Szeto (2002) provided the methodology to analyze penetration level which simultaneously satisfies the three objectives (service providers' objective, traffic management agency's objective and users' objective). But there are no studies to explore the optimal penetration level at which the marginal social benefit is equal to marginal social cost. This study develops the partial equilibrium economic model to calculate the optimal penetration level and taxation/subsidization level of VICS and calculate them by applying this model to Kantou-Area where is the most congested area in Japan. The result of our analysis shows that it must be necessary to realize optimal level of penetration of VICS to impose a fixed charge per VICS unit except in the case where the effect of negative externality is very weak.

Date: 2006-08
New Economics Papers: this item is included in nep-geo and nep-net
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