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Ashish's Niti

Niti in Sanskrit means policy/strategy/vision. This blog hosts my political views, along with news and commentary. This blog has moved here.

Thursday, August 19, 2004

Is Congestion in Toll Roads an Externality?

Marginal Revolution talks about potential of Toll Roads in reducing pollution and accidents. Various solutions like Congestion pricing and charging higher fees for bigger vehicles like SUVs and trucks, attempt to solve the problem only marginally. That is, it only considers each additional use of the Toll Road mile separately. If Congestion increases then higher fees are charged. But what about those drivers who are have already paid the Toll and are using the Toll Road? Don't their expectations about certain congestion level, risk of accident and speed when they paid their Toll count for something?

There is also issue of service level expected by drivers who subscribe to Toll Roads on a regular basis. In such cases, each additional marginal increase in traffic violates the implict or explict expectations that subscribers might have regarding traffic level, speed and accident risk. If certain drivers do care about congestion, accident risk level etc. then they could subscribe to the Toll Road use with combination of either fixed service level guarantees and fixed fees or variable fees depending upon the actual service level provided. In later case, Toll Road owners will have to balance the increased income from marginal traffic and loss of revenue from the subscription because of degration of service level. Will such an arrangement internalize the externalities involved?

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