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Probabilistic Choice and Congestion Pricing with Heterogeneous Travellers and Price-Sensitive Demand

Paul Koster, Erik Verhoef, Simon Shepherd and David Watling
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David Watling: University of Leeds, United Kingdom

No 14-078/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper deals with first-best and second-best congestion pricing of a stylised two-link network with probabilistic route choice of travellers. Travellers may have heterogeneous values of travel times and may differ in their idiosyncratic route preferences. We derive first-best and second-best tolls taking into account how the overall network demand responds to generalized costs including the tolls that are levied. We show that with homogeneous values of times the welfare losses of second-best pricing, of one link only, may be smaller if route choice is probabilistic. Furthermore, we show that with heterogeneous values of times, common second-best tolls and group-differentiated tolls can be very close when route choice is governed by random utility maximisation, leading to low welfare losses from the inability to differentiate tolls.

Keywords: Stochastic User Equilibrium; Second-best Congestion Pricing; Preference Heterogeneity; Scale Heterogeneity; Probabilistic Choice (search for similar items in EconPapers)
JEL-codes: R40 R41 R48 (search for similar items in EconPapers)
Date: 2014-06-27, Revised 2014-11-13
New Economics Papers: this item is included in nep-dcm, nep-tre and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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