Financing Transportation Networks
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Financing Transportation Networks

David M. Levinson

Pollution, alternative fuels, congestion, intelligent transportation systems, and the shift from construction to maintenance all call for a reconsideration of the existing highway revenue mechanisms, especially the gas tax. David Levinson explores the fundamental theoretical basis of highway finance, in particular the use of tolls, and supports that theory with empirical evidence. The author examines highway finance from the perspective of individual jurisdictions and travellers, and considers their interactions rather than specifying a single optimal solution. Congestion pricing has long been a goal of transportation economists, who believe it will result in a more efficient use of resources. Levinson argues that if the governance were to become more decentralized, and collection costs continue to drop, tolls could return to prominence as the preferred means of financing roads for both local and intercity travel. An approach that creates the local winners necessary to implement road pricing is required before it can be expected to become widespread.
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Chapter 10: Congestion Pricing

David M. Levinson


INTRODUCTION Explaining the advantages of congestion pricing to a non-technical or even non-economist audience is difficult. The task is made more difficult by the choice of graphs and the assumptions used in the explanation. Often, the graphs do not permit the use of standard economic tools such as consumers’ surplus. The difficulty lies with the use of generalized cost and a revealed demand curve, rather than the use of a money cost and the multiple underlying demand curves reflecting different demands for road use at different levels of service. This chapter seeks a more straightforward development of the justification for congestion pricing from a graphical perspective. It then develops a more microscopic understanding, which will be important when considering compensation in the next chapter. Game theory has been applied to a number of issues involving the financing of transportation. In previous chapters, game theory was used to help understand how jurisdictions choose to finance their roads. This chapter considers its application to congestion and congestion pricing. While congestion is normally thought of as a phenomenon involving hundreds or thousands of vehicles, at its most basic, it simply involves two. Those two may want to use a facility that can only accommodate one at any given time, forcing the other to wait. If there were no penalty for arriving early or late, the individuals might coordinate their actions to arrive at different times. However, if there is an advantage to arrive a particular time (the cost of being early or late...

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