Peak-Load Pricing in Portland: Theory, Application, and Recommendations for Central Business District Pricing Policy

Abstract

In order to make good microeconomic policy in the public sector, non-rivalrous goods and joint costs need to be addressed. One field where non-rivalrous goods and joint costs are important to consider is in the economics of peak-load pricing and transportation policy. This concept is often applied to electrical utilities, but not often applied as a way to relieve the burden of downtown traffic congestion during peak traffic times or to increase city revenues. This paper discusses the theory of peak-load pricing as it applies to “central business districts” (CBDs). It demonstrates successful and unsuccessful examples of peak-flow pricing in CBDs in other cities, including how the private costs of driving interact with potentially implementing a policy, and how politics play a role in implementing peak-load pricing policies. Finally, it discusses current transportation policies in Portland, Oregon, and recommends the city implement a congestion pricing policy.