Abstract
This paper offers a broad overview of road pricing from a social welfare perspective. I first examine two common objectives of road pricing: congestion management and profit making. My goal is to provide a guideline explaining how to promote a social-welfare-enhancing road pricing scheme. To this end, we should: (i) consider and improve public transportation systems by providing more environment-friendly transport options; (ii) include tolling profits in our welfare analysis (as opposed to what economists suggest) since residents are the real owners of roads not users, and since some users are from outside the region and so might not be excluded from analysis; and (iii) search for a holistic approach that takes into account system-wide impacts, disutility to users who change their travel behavior (i.e., switch to public transportation, shift their travel, or do not travel at all), and the impacts on land use, employment, and residents.
Highlights
There is broad agreement among transportation practitioners that under certain conditions, road pricing (RP) can effectively provide a better transportation service, in particular to mitigate traffic congestion impacts [1,2]
Prud’homme and Bocarejo [32] estimated the aggregate demand and supply functions for the London congestion pricing scheme and determined the optimal road usage and optimal congestion toll for the system. They demonstrated that the London congestion pricing was an economic failure despite its political success (Refer to Box 1 for more details on the practical challenges of the London congestion charge zone)
Transportation practitioners should be aware of the social welfare decrease of RPs when some users decide not to travel because of higher travel costs associated with charging tolls [16]
Summary
There is broad agreement among transportation practitioners that under certain conditions, road pricing (RP) can effectively provide a better transportation service, in particular to mitigate traffic congestion impacts [1,2]. RP schemes imply adoption of a fee for the provision of road services, usually taking into consideration social and/or private costs of driving They could provide the appropriate price signal to drivers. Several other steps should be taken to create a social-welfare enhancing RP: (i) development of detailed models that can estimate the outcomes of various design parameters such as toll rates and tollbooth locations; (ii) inclusion of flexibility in pricing as an effective tool in managing congestion; (iii) application of a systems approach, not considering only a road (segment) or an area; (iv) investment in environmental-friendly public transport systems which incur less social costs on the society, especially since RP increases costs of driving and could incentivize public transport use; and (v) identification of an all-inclusive goal (rather than maximizing revenue or minimizing congestion effects, the goal should be maximizing social welfare). I provide a detailed guideline for how future generations of road pricing schemes should be implemented to improve social welfare
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