Abstract
We study the effect of highway congestion on the “arms race” on American roads, which has led to larger and more powerful vehicles that reduce safety and increase fuel consumption. We develop a new methodology to estimate a dynamic vehicle size choice and replacement model and find that congestion delays affect vehicle sizes. We then show that by addressing complementary externalities – congestion and the externalities associated with larger vehicle sizes – congestion pricing could reduce the vehicle fatality rate, generating $25 billion in annual benefits, and could improve vehicle fleet fuel efficiency, generating roughly $10 billion in annual operating cost savings.
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