A note on the distortionary effects of revenue-neutral tolls in a bottleneck congestion game

Nicholas Janusch

Transportation Research Part A: Policy and Practice, 2016, vol. 92, issue C, 95-103

Abstract: This note demonstrates how the redistribution of revenue from a Pigouvian policy can distort incentives and handicap the social objectives of the policy by creating a moral hazard problem. Based on the Levinson (2005) game theory model, I develop a three-player bottleneck congestion game that emulates a repeated prisoner’s dilemma and derive efficient tolls. This conceptual game demonstrates the distortionary effects from a revenue-neutral toll policy with lump-sum revenue redistribution and the equity-efficiency tradeoff.

Keywords: Game theory; Congestion; Pricing; Revenue recycling; Acceptability (search for similar items in EconPapers)
JEL-codes: C72 Q58 R48 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.tra.2016.07.007

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