Congestion Pricing: A Mechanism Design Approach

Johnen, Johannes;Schmitz, Sebastian;Heller, Philipp
(2019) Journal of Transport Economics and Policy — Vol. 53, n° 1, p. 74-98 (2019)

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Authors
  • Johnen, Johannesorcid-logoUCLouvain
    Author
  • Schmitz, SebastianFederal Ministry for Economic Affairs and Energy, Germany
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  • Heller, PhilippNERA Economic Consulting, Germany
    Author
Abstract
We study traffic congestion as a mechanism design problem by analyzing the allocation of drivers to a congestible road. Drivers have private information about their value of time (VOT). With a finite number of drivers, the efficient allocation depends on drivers' VOTs and is ex-ante unknown. Thus, setting a single Pigouvian price is generally not optimal. Nevertheless, the regulator can implement the efficient allocation with a Vickrey-Clarke-Groves payment rule: drivers pay for road access but also for faster travel. Our mechanism sets this price correctly without prior knowledge of the distribution of drivers' VOT.
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Johnen, J., Schmitz, S., & Heller, P. (2019). Congestion Pricing: A Mechanism Design Approach. Journal of Transport Economics and Policy, 53(1), 74-98. https://hdl.handle.net/2078.5/173141 (Original work published 2019)