Economics at your fingertips  

Governmental competition in road charging and capacity choice

Barry Ubbels and Erik Verhoef ()

Regional Science and Urban Economics, 2008, vol. 38, issue 2, 174-190

Abstract: This paper studies policy interactions between an urban and a regional government, both controlling one link of a two-link serial road network, where regional drivers may use both roads and urban drivers use the urban road only. Both governments set capacity and toll on one link, in a two-stage game where tolls are set after capacities have been committed to, and try to maximize social surplus for their own population. We use a simulation model to investigate the welfare consequences of the various possible game-theoretical set-ups. We find that governmental competition may be rather harmful to aggregate social surplus, compared to first-best policies. The main determinant of social welfare is not which exact type of game is played between the two governments, but much more whether there is cooperation (leading to first-best) or competition between them. Only of secondary importance is the question who is leading in the price stage (if there is a leader). Sensitivity analysis suggests that the relative performance for most game situations improves when demand becomes more elastic, and remain insensitive with respect to the unit cost of capacity expansions.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Governmental Competition in Road Charging and Capacity Choice (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou

More articles in Regional Science and Urban Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-03-31
Handle: RePEc:eee:regeco:v:38:y:2008:i:2:p:174-190