Chapter 9: Finance Choice at a Frontier
INTRODUCTION If tolls ever again become a widely used revenue source, it will not happen overnight. Some locations will be more politically acceptable for new toll collections than others. In particular, jurisdiction boundaries or frontiers, where at least half the crossing vehicles are driven by non-residents, would seem to be among the most politically palatable locations for tolls. However, a frontier, by definition, involves more than one jurisdiction, and the policies of neighbors affect each other. This chapter considers the welfare implications of tolling at a frontier under alternative behavioral assumptions - different objectives (welfaremaximizing, profit-maximizing, cost recovery), willingness to cooperate on setting tolls - and over different time frames (one-time interactions and repeated interactions). By understanding how tolls, welfare, and profits vary under different behavioral assumptions, both the motivations of jurisdictions and under which behaviors tolls will be most likely can be assessed. There are two problems that are considered in this chapter, referred to as strategic and tactical decisions respectively. First is the strategic decision: will a jurisdiction tax or toll? Second is the tactical decision: if it tolls, what toll will it set? The decision to toll and the rate of toll set by one jurisdiction affects the welfare of the residents of another jurisdiction, leading to interactions and possible gains to both jurisdictions by cooperating. Game theory, developed by Von Neumann and Morgenstern (1944), presents an analytic approach to explain the choices of multiple actors in conflict with each other, with scope for cooperation, where the...
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