A two-route Ramsey pricing problem: second-best congestion pricing with an untolled alternative and a revenue constraint

Seiji Steimetz ()
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Seiji Steimetz: California State University, Long Beach

Economics Bulletin, 2015, vol. 35, issue 4, 2535-2542

Abstract: This paper derives a second-best congestion toll for when two congestible facilities are perfect substitutes, but only one facility can be priced, and where a minimum amount of toll revenue must be generated. It is shown that the resulting, second-best toll equals a weighted average of the social planner's optimal toll and the profit-maximizing toll of a private monopolist, with the shadow price of the revenue constraint serving as the weight. As the revenue constraint is relaxed, the social planner's toll becomes more efficient. But when the revenue constraint becomes more difficult to satisfy, monopoly pricing becomes more efficient.

Keywords: congestion pricing; Ramsey pricing; second-best pricing; externalities (search for similar items in EconPapers)
JEL-codes: H2 R4 (search for similar items in EconPapers)
Date: 2015-12-13
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