Congestion Pricing

P with toll, no K I
congestion

P with D
economist toll A
M F E

B L
C
G
H N

P = $ per mile plus inconvenience
(assumes inconvenience is class neutral
(theoretical and political reasons)
Q5 MAX
Q4 Unstable
Q1 Equilibrium without toll
Q2 Equilibrium with economist’s toll
Q3 Without congestion
 Tolled = Q2
Economist Case Tolled off = Q2 - Q1

P with toll, no K I
congestion
Lost
P with Consumer
D
economist toll A Surplus
M F E
Toll Revenue
B L
C
Congestion Cost
G N
H

Q5 MAX
Q4 Unstable
P = $ per mile plus inconvenience Q1 Equilibrium without toll
(assumes inconvenience is class neutral
Q2 Equilibrium with economist’s toll
(theoretical and political reasons)
Q3 Without congestion
 Tolled = Q3
Toll too high (no congestion) Tolled off = Q1 - Q3
Increment tolled off = Q2 - Q3

P with toll, no K I
congestion
Lost
P with Consumer
D
economist toll A Toll Revenue Surplus
M F E

B L
C
G N
H

Q5 MAX
Q4 Unstable
Q1 Equilibrium without toll
P = $ per mile plus inconvenience
(assumes inconvenience is class neutral Q2 Equilibrium with economist’s toll
(theoretical and political reasons) Q3 Without congestion
Note: Toll revenue KIGH is larger than
Toll revenue ABCD but less than
Toll revenue ABCD plus consumer surplus ILDC

Problem: Surplus FCE and LHC are not real because congestion
destroys it

Note: Toll authority has temptation to “overtoll”

But assume “technology”, such as

-Transit or
-Larger aircraft or
-Off-peak discounted tolls and or

-Assume toll recovery helps to buy the “technology” transit expansion