Results Not Guaranteed: A Tale of Road Pricing in New York and London

Abstract

This paper analyzes the elements of road pricing that are effective in managing urban congestion. The general theory of road pricing is discussed and theoretical arguments are presented against arbitrary road pricing. Tolling in New York City, where pricing has been imposed on a piecemeal basis without overall system performance goals in mind, is presented as a case study. The current New York situation is compared with the London cordon pricing scheme, which has been successful in obtaining its objectives. It is concluded that road pricing is economically sensible in generic terms but may be inefficient, or even detrimental, in practice. To reduce congestion, pricing must be specifically designed to do so, taking into account local conditions and institutions. Comparing the New York City and London experiences revealed that urban road pricing must be done on a systematic basis. The quality of transit service is important so that it can be a reasonable alternative to automobile travel. Where there are decentralized institutions, as is the case in many American cities, institution rigidities need to be considered in designing pricing schemes. London's recent growth in congestion has undermined some of the travel improvements created by the congestion charge. This indicates that even well-designed pricing plans need to be able to shift with changing conditions.