Transaction costs and tradable mobility credits

Abstract

Artificial markets for mobility credits have been proposed as an alternative to conventional congestion pricing schemes. This paper examines the effects of transaction costs on two types of markets: an auction market and a negotiated market. In an auction market, users purchase all of the needed mobility credits through a competitive bidding process. In a negotiated market, the users initially receive certain amount of mobility credits from the government and trade with each other through negotiation to fulfill their needs. We assume that a brokerage service is built in both markets to facilitate transactions and accordingly, the users have to pay a commission fee proportional to the value of trade. The users are also given the option to purchase credits from the government if for some reasons they cannot use or wish to avoid the markets. Our analyses suggest that the auction market can achieve the desired equilibrium allocation of mobility credits as long as the government sets its price properly and the unit transaction cost is lower than the price that the market would reach in absence of transaction costs. However, in the negotiated market, transaction costs could divert the system from the desired equilibrium regardless of their magnitude. More importantly, the initial allocation of mobility credits may affect the final equilibrium even when marginal transaction costs are constant.