Pareto Improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways

Jonathan Hall

Working Papers from University of Toronto, Department of Economics

Abstract: This paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a Pareto improvement even before the resulting revenue is spent. I obtain this new result by extending a standard dynamic congestion model to reflect an important additional traffic externality recently identified by transportation engineers: additional traffic does not simply increase travel times, but also introduces frictions that reduce throughput. In particular, I show that as long as some rich drivers use the highway at the peak of rush hour, then adding tolls to a portion of the lanes yields a Pareto improvement. To confirm the relevance of this theoretical possibility in practice, I use survey and travel time data to estimate the joint distribution of driver preferences over arrival time, travel time, and tolls, and use these results to estimate the effects of adding optimal time-varying tolls. I find that adding tolls on up to half of the lanes yields a Pareto improvement, and that the social welfare gains of doing so are substantial---up to $1,740 per road user per year.

Keywords: Congestion pricing; Value pricing; Pareto improvement (search for similar items in EconPapers)
JEL-codes: D62 R41 R48 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2015-10-15
New Economics Papers: this item is included in nep-tre and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways (2018)
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