4 TR NEWS 263 JULY–AUGUST 2009 Committee. TRB CongestionPricing Mechanisms andofthe portation Finance Alternative Trans - Implications of Committee onEquity Council–appointed of theNationalResearch chusetts. Heisamember Cambridge, Massa - Systematics, Inc., with Cambridge The authorisaPrincipal JEFFREY N.BUXBAUM Congestion PricingBasics Pricing RoadUseto Address Congestion T improving traveltimereliability are important moti- interest academics. tions oftendiffer from theefficiency concernsthat policy arenas—from statelegislatures andgover- nors’ offices totheradioandblogs—themotiva- pricing. Yet whenthetopicisdiscussed inpublic ever, haveprompted greater interest incongestion because thenecessarytechnologydidnotexist. ways mostlyhadbeenanacademicconcept, Recent advancesinelectronic tollcollection,how- ple liveandwork,locatebusinesses,socialize. be amajorchange,potentiallyaffecting where peo- to varyaccording tochangesindemand. the fewfacilitiesthatare tolledare seldomallowed however, are notpricedthisway, andthe prices on some customerswillchoosenottobuy. Highways, operating highways.Asystemthatsetsapricefor ply. Ifdemandexceedssupply, priceswillrise,and highway useasawayofreducing congestionwould of payingforthecostbuilding,maintaining,and Motorists havegrown accustomedtothesemethods motor fueltaxes,excisesalesandtolls. system ofpayingforhighwayshasrelied largely on From thebeginningofautomobiletravel,U.S. Motivations forCongestionPricing ketplace rely onpricingtoaligndemandwithsup- vehicles, sothatthetraffic flowsmore freely. periods, ortoothermodes,routes, orshared-ride system, byshiftingsomedriverstolesscongested ior tomakemore efficient useofthetransportation revenue, butwiththeintentofchangingtravelbehav- for congestionpricingare different. Theygenerate way infrastructure isthemainfunctionoftolls.Tolls Reducing congestionduring peak periodsand Until recently, thecongestionpricingofhigh- Most products suppliedinthemar- andservices poses, manybelievethatfinancinghigh- revenue oftenmaybeusedforotherpur- since theRomanEmpire. Althoughtoll olls havefinancedhighwayinfrastructure

high-occupancy toll(HOT)lanes. Minnesota’s I-394uses electronictollcollectiononits

/DOT M , G D : P N ONZALEZ AVID HOTO TR NEWS 263 JULY–AUGUST 2009 5 Laureate, advanced the Laureate, advanced idea of congestion pricing. William Vickrey, a Nobel William Vickrey,

PHOTO: JOE PINEIRO, COLUMBIA UNIVERSITY ARCHIVES - Some motorists will choose to pay the con- Some motorists will choose to pay the or Those who choose an alternative road or modes routes using other Those who were


The distribution of winners and losers, and The current system of financing highways system of financing The current Although congestion pricing can produce an Although congestion pricing can produce Technology was not Technology gestion charge and continue to use the same road and continue gestion charge as a They will pay more at the same time as before. value on consequence. These motorists place a high because worse off, mode or who cancel the trip are or how they not traveling when, where, they are before because new travelers now may be worse off, If may be competing with them for the capacity. of the the throughput congestion pricing increases congestion on other however, priced highway, Only a detailed and modes may be reduced. routes impacts. the traffic analysis can reveal whether society as a whole is better off with con- whether society as a whole is better off gestion pricing, will depend on several factors, on travel including who pays the tolls, the net effect time, and some will be better off because of the because of time, and some will be better off pay the travel time savings. Because all motorists doing better off are by choice, all presumably charge such as this than taking advantage of other options, route, time or on a different driving at a different On the trip altogether. taking transit, or forgoing than they many still will be worse off net, however, pricing. congestion before were want. conditions, how the revenue is spent, and changes conditions, how the revenue as fuel consumption, of concern, such in other areas and safety. emissions reduction, its own fees creates fuel taxes and vehicle through winners and losers, but the social fabric has been implemented. economically efficient solution to road conges- solution to road economically efficient most value tion—so that society as a whole gets the may be made out of its expenditures—travelers not used to are on average if the revenues worse off these examples: Consider mobility. increase ever. Changing the sta- ever. tus quo of highway funding and use would winners and create to be if congestion pricing were to be addressed technological develop- technological interest ments renewed congestion pric- in road ing. to the only impediment congestion pricing, how losers. Vickrey had recognized that this would need had recognized losers. Vickrey Under conditions of high volume, however; one Moreover, the higher prices signal that addi- the higher prices signal Moreover, and the But the mostly private users of roads mostly public suppliers of road capacity do not mostly public suppliers of road pricing signals. State and local governments receive and for the building have been responsible largely in the United States, so that the operation of roads as a public good. In an highway system is perceived the from economic sense, no one can be excluded use of the use of a public good, and one person’s good does not diminish its value to others. system may cause additional vehicle entering a road congestion and creating slow, to the flow of traffic Nobel Laureate William Vickrey advanced the idea Vickrey William Nobel Laureate Pricing for Social Efficiency tional investment in production capacity may be tional investment in production will raise prices on a popular An airline profitable. to manage demand for the limited number of route decide that seats, but at some point the airline may be prof- would adding another flight to the route emphasize that a key itable. Some proponents it would advantage of congestion pricing is that system that identify places in the transportation capacity. warrant investments in more According to basic microeconomic theory, the theory, to basic microeconomic According to the price responsive directly demand for a good is supply of a good is fixed, the of the good. If the demand peaks. Examples prices can be raised when include airline tickets on hol- of time-based pricing midday iday weekends, daytime cell phone use, and who cause electricity use. In each case, customers while the peak congestion must pay a premium, at off-peak willing to purchase users who are less. is less scarce—pay times—when the resource Pricing Signals and Congestion Pricing Signals vations, but so are encouraging transit use, reduc- encouraging transit so are vations, but and consumption, emissions and energy ing vehicle trans- for a funding source providing especially may view a Some and projects. programs portation pricing as a means of chang- system of congestion economic regional promoting ing urban form and development. delay for others—so that highways are not strictly delay for others—so that highways are of congestion pricing during the 1950s and 1960s. Implementation of his ideas was impractical, how- public goods. When there is no charge for entry, is no charge public goods. When there motorists do not consider that they are imposing a motorists do not consider that they are ever, because of the primitive nature of toll collec- of because of the primitive nature ever, tion. By the 1990s, tolls could be collected cost on others; the resulting market failure is market failure cost on others; the resulting known as congestion. electronically without stopping vehicles, and sev- without stopping vehicles, and electronically eral toll roads operated without tollbooths. These operated without tollbooths. eral toll roads 6 TR NEWS 263 JULY–AUGUST 2009

PHOTO: ILLINOIS TOLLWAY Illinois. Tollway (I-294)in on theTri-State Park RoadToll Plaza lanes attheIrving Open roadtolling gle, limitedhighway corridortoalonger or mum traffic flow. Extendingpricing beyondasin- lanes, andare changedfrequently tomaintainopti- demonstrate howthisworks—prices are set temporary high-occupancy toll (HOT)lanes dynamically, basedonthe traffic levelinthepriced according totheresponses—all inreal time.Con- then decidehowtorespond; andadjusttheprices prices; communicatethepricestotravelers,who authority mustanticipateeconomicallyefficient necks. sisted afterthetripbecauseofnature ofbottle- the travelwasfeltalongentire route andper- Vickrey pointedoutthatthedecisiontotravel is made atthebeginningofatrip,butimpact to embarkonatripwillaffect systemcongestion. and anunderstandingofhoweachdriver’s decision parts ofthetransportation systemsimultaneously extensive knowledgeaboutcongestionlevelsonall the entire roadway system. doned centralbusinessdistrict.Afourth istoprice within—all roads inaspecifiedzone,suchascor- is toestablishpricesforaccessto—ortravel entire road orcollectionofroads. Athird approach on thetolledlanes.Anotheroptionistopricean gestion pricingare used. comes dependentonhowtherevenues from con- a freeway, offering patrons ahigherlevelofservice ways. Oneoptionistopriceoneormore laneson Congestion pricingcanbecarriedoutinmany Getting PricesRight system toanotherwillbedisruptive,withtheout- built around thissystem.Thetransitionfrom one In theory, undercongestionpricing,ahighway Congestion pricingonalarge scalerequires day. Nosystemcharges higherratesonmore con- road, andgeneral location—forexample,central of usercharges basedonthetime ofday, typeof and eachroad onthesystemisasimplified setting adifferent priceforeachminuteoftheday by agovernment-runsystem. travelers wouldconsiderthistreatment tobeunfair higher ratesmaybeeconomicallyefficient. Many gested ormore popularroutes—although the ing peakhours,mostsystemshaveconstantratesall charge perdistancetraveled,withhigherpricesdur- systems—like theWashington, D.C.,Metro— time ofdayordistancetraveled.Althoughsome Transit systemsoftencharge aflatrate,regardless of another, evidentinestablishingurbantransitfares. tus quo done well,stillwouldbemore efficient thanthesta- may notbethemosteconomicallyefficient but,if ical compromises, however, theresulting system business district,suburb,orruralarea. Afterpolit- only part oftheequation.Perceptions offairnessare additional technicalandpoliticalcomplexity. to abroader systemofpricedroadways introduces increase in otherparts of thesystem. maintain optimaltravelspeeds, throughput may ways. Therefore if pricingcanmanagedemandto borne outdailyinstop-and-go conditionsonfree- throughput despitehigherdemand.Thisparadoxis point, speedsdrop precipitously, allowing less 45 milesperhour. Whendemandexceedsacertain on ahighwayoccurswhenvehiclestravelatabout facility allowhigherthroughput. Theoptimumflow and whetherimproved operationsonthepriced revenue canbeusedtoenhancetheroads’ capacity gestion willdependinpart on whethersomeofthe opportunities toshifttravelotherparts ofthesys- Unless allroads are priced,motoristswillhave Effects ontheSystem rience anincrease, adecrease, ornochangeincon- roads withthedisplacedtraffic. and ofthosewhonowmustshare thenonpriced the expenseofthosewhonolongerusefacility travelers onthepricedfreeway willbewinningat impact onthesystem—anetwinforsociety. Still, addition, motoristswhopreviously usedthealter- the costofusingalessappealingroute ormode.In tem toavoidthecharges. Thesemotoristswillincur pricing freeway usemayinsteadhaveapositive tion. Butbecausefreeways carrysomuchtraffic, higher traffic volumesandpossiblymore conges- nate route mayexperiencethenegativeeffects of One optionthatperhaps ismore practicalthan Obtaining aneconomicallyefficient outcomeis The extenttowhichnonpricedroads willexpe- . TR NEWS 263 JULY–AUGUST 2009 7 . 1993. , No. 14, pp. 111–123 Traffic Congestion and Traffic . 2006. Discussion paper, 7th Discussion paper, Barriers to Efficient Cost- to Efficient Barriers Springer Science and Busi- Pareto Improving Congestion Improving Pareto Marginal Social Cost Pricing in Marginal 2008. Schweitzer, L., and B. D. Taylor. Schweitzer, Advisory Group Meeting. Advisory Group Just Pricing: The Distributional . 2000. Transport Policy Transport facturers Association] Scientific facturers Effects of Congestion Pricing and Effects 1992. Marginal Cost-Based Pricing in Trans- Marginal ACEA [European Automobile Manu- ACEA [European Sales Taxes. Sales Taxes. 2003. Transport Policy. Policy. Transport ness Media, 2008. Prud’homme, R. Transport Economics, 2nd Edition. Transport www.imprint-eu.org/public/Ev_v2.pdf. William Vickrey: Contributions to Public Policy Vickrey: William Do Economists Reach a Conclusion on Road Pricing? The Economic Fundamentals of Road Pricing: A Dia- Verhoef, E. Verhoef, Congestion Pricing Lindsey, R. C., and E. T. Verhoef. Verhoef. R. C., and E. T. Lindsey, port: Key Implementation Issues from the Economic Per- port: Key Implementation Issues from spective. October 1997. grammatic Analysis. for Road Networks. Tolls of an Idea The Intellectual History of Congestion Pricing. Infrastruc- Transport and Water Based Pricing of Rail, Air, in Europe. ture (2007). http://shoup.bol.ucla.edu/PoliticalCalculus.pdf. The complexity of the technical and political The complexity of pricing ideas con- The testing of new congestion

Button, K. J. R. Lindsey, Arnott, R. Hau, T. D. Hau, T. Lawphongpanich, S., and Y. Yin. Yin. Lawphongpanich, S., and Y. 1. King, D., M. Manville, and D. Shoup. The Political Calculus C. Nash, and E. Niskanen. N., Adler, facilities and HOT lanes. Lessons from these might from HOT lanes. Lessons facilities and of pricing, such as well to other types not translate been tried overseas pricing that has the zone-based the those of from different much in environments pricing suggests the need to aspects of congestion these new ideas with caution, by con- approach analyses that are ducting tests and undertaking and methodologically comprehensive, transparent, United States. the con- must respect Practitioners also correct. constituencies. cerns of the affected tinues in the United States. The articles in the rest States. The articles tinues in the United so far on what has been learned of this issue report emerging and on new ideas and insights that are experiments. from Reference Additional Resources Acknowledgments Williams The author gratefully acknowledges David for of Transportation Department of the Oregon treatment identifying the need for a plain-language of an earlier version of this topic, and for his review of this work, and the research assistance of Evan of this work, and the research and Enarson-Hering of Cambridge Systematics Alexander Heil, formerly of Cambridge Systematics.

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H P ). They argue that those who perceive that those who ). They argue 1 Awarding grants to affected communities; and grants to affected Awarding to all drivers, which Allocating toll credits Rebating motor fuel taxes; or Reducing general taxes, such as income Investing in transit improvements in the improvements Investing in transit to the nonpriced Subsidizing improvements





Examples of potential revenue uses include the uses revenue Examples of potential University of California planners King, Manville, But with little real-world expe- But with little real-world would be more compact, with greater use of public compact, with greater would be more Smart Tag transponder. Smart Tag adjustments in tolls on toll States has involved minor Technological and conceptual ideas Technological Gaining Practical Experience pricing had If the technology necessary for road been available at the beginning of the motor vehi- the full cle era, and if it had been used to capture social cost of driving, communities might marginal perhaps Urban areas have developed differently. transportation. Distributing the Revenue Distributing is an age-old politi- of public revenue Distribution and building polit- about equity cal issue. Concerns may pricing concept for the congestion ical support to com- temptation to use revenues strong a create benefits to favored to spread pensate the losers and This may be the only practical way to build groups. still yield a net positive for the concept and support contribution to society. following: themselves to be losers from congestion pricing are themselves to be losers from to the political resistance likely to form a strong would of revenue distribution concept. The targeted themselves as win- to perceive allow these groups congestion pricing. to ners and give their support and Shoup have suggested that using congestion and Shoup have suggested that using may make to compensate groups pricing revenue good sense ( some may use in full or trade-in any surplus for some may use in full or trade-in any surplus cash or tax rebates. property taxes; property affected area; area; affected example, to paral- of the highway system—for part lel arterials; experience in the United projecting the outcome is projecting Most of the pricing difficult. rience of congestion pricing, for congestion pricing are continually being tested. 8 TR NEWS 263 JULY–AUGUST 2009 Northern Virginia. under constructionin Lanes Projectiscurrently The CapitalBeltwayHOT Maryland. tant inSilverSpring, an independentconsul- California; andBerg is Analytics, Oakland, Vice President, K.T. Maryland; Higginsis Analytics, Bethesda, Bhatt isPresident, K.T. KIRAN BHATT, THOMASHIGGINS,ANDJOHNT. BERG An Overview with CongestionPricing U.S. and Worldwide Experience Pricing RoadUseto Address Congestion O of tollortoll-free facilitiestovariabletolls,andappli- (HOV) lanesandnewexpress lanes,theconversion tion includethepricingofhigh-occupancyvehicle ating. Theprojects implementedorunderinvestiga- a tollthatvariesbytimeofdayorthelevelcon- cation ofcongestionpricingwithinaregion. a dozenstates,withmore than20projects nowoper- congestion pricingprojects andstudiesinmore than pancy requirements tobuy-inthelanesbypaying allow driversofvehiclesthatdonotmeettheoccu- lanes intohigh-occupancytoll(HOT)lanes,which in theUnitedStatesinvolvesconversionofHOV The mostcommonapplicationofcongestionpricing HOT LaneConversions the federalprogram hassupported more than50 the OrangeCountyproject started operations,and eral CongestionPricingPilotProgram. Sincethen, were inplanningstageswithsupport from theFed- ning anddesignphase,severalotherprojects

County, California,wasintheplan- A privatepricingproject inOrange was initsinfancytheUnitedStates. nly 15yearsago,congestionpricing

T D V , W T : P RANSPORTATION OF EPARTMENT IRGINIA RAYTON REVOR HOTO demand tomaintainfree-flowing traffic. Feescan California. TheFasTrak tollsvarywiththelevelof FasTrak facility, whichopenedin1996SanDiego, sion projects are summarizedinTable 1(page9). speed lanesforfree. SomemajorHOTlaneconver- gain accesstoahigh-speedalternative,ormeetthe untolled lanesattheavailablespeed,orpayatollto Motorists canchoosetocontinueonthemain travelers facingtraffic congestionwithnewchoices. free flowoftraffic. Inthisway, HOTlanesprovide restricted lanesandthesettingofratestomaintain lanes isthattheHOVare underused,despite gestion ordemand.Arationaleforconverting toHOT ing peakperiods.Theaveragetollrateisapproxi- between $0.50and$4.00,butcanreach $8.00dur- motorists ofthecurrent fee.Tolls typicallyvary increments. Messagesignsattheentranceinform vary asoftenevery6minutes,typicallyin25-cent minimum occupancyrequirements andusethehigh- increased congestionontheadjacentmainlanes. travel timeaverage20minutesperjourney. mately $1.25andseldomexceeds$4.00.Savingsin of three occupants(HOV-3), wasconverted in1998to The freeway’s HOVlane,whichrequired aminimum cent. ThetotalvolumeontheHOTlaneincreased by while theHOV-3 volumedecreased bylessthan3per- program increased HOV-2 volumeby 40percent, pant vehicleshaveaccessforfree. ThisQuickRide buy-in tothelanesduringtimesthatthree-occu- a HOTlane.Driversoftwo-occupantvehiclescan hour (mph)butexceeded55mph ontheHOTlane, speed onthegeneral-purposelanes was25milesper 21 percent duringthemorningpeak.Theaverage 2006; theMnPASS I-394project in Minneapolis, I-25/US-36in Denver, Colorado,started in include yielding a17-minutetimesavings forthe13-miletrip. Minnesota, begun in2005;andtwothatopened in The earliestHOTlaneconversionwastheI-15 Electronic tollingensures high-speedaccesstothe Another earlyexampleisI-10inHouston,Texas More recent examples ofHOTlaneconversions .