Winners and losers from road pricing with heterogeneous travelers and a mixed-traffic bus alternative

Abstract

Studies of road pricing in which the Value of Time (VOT) varies among travelers suggest that road pricing benefits travelers with high VOT and hurts travelers with low VOT. This happens because, when a toll reduces congestion, only high-VOT travelers value the time saved more than the money cost. This paper uses a static traffic model with elastic demands to examine how the presence of a mixed-traffic (one affected by congestion) bus alternative, which is cheaper but slower than driving, alters that logic. When “agents” (potential travelers) care only about the time and money costs of each alternative, it turns out that Pareto-improving toll increases are possible; and, absent a Pareto improvement, the “Full Cost of Travel” (inclusive of time and money costs) rises only inside an intermediate interval of VOT while falling for sufficiently high and low VOT. But when agents have heterogeneous “tastes” for each mode, the Full Cost of Travel falls for all agents with VOT higher than a certain level, and below that level the direction of change depends on an agent’s taste.