Editing Congestion pricing (section)

== Description ==

Congestion pricing is a concept from [[market economy|market economics]] regarding the use of [[Free price system|pricing]] mechanisms to charge the users of [[Public good (economics)|public good]]s for the [[externalities|negative externalities]] generated by the peak demand in excess of available supply. Its economic rationale is that, at a price of zero, demand exceeds supply, causing a [[economic shortage|shortage]], and that the shortage should be corrected by charging the [[equilibrium price]] rather than shifting it down by increasing the supply. Usually this means increasing [[price]]s during certain periods of time or at the places where congestion occurs; or introducing a new usage [[Pigovian tax|tax]] or charge when peak demand exceeds available supply in the case of a tax-funded public good provided free at the point of usage.

[[File:TE-Pricing-EquilibriumCongestion.png|thumb|left|Economic rationale for moving from untolled equilibrium to congestion pricing equilibrium]]

According to the [[economic theory]] behind congestion pricing, the objective of this policy is the use of the price mechanism to make users more aware of the costs that they impose upon one another when consuming during the peak demand, and that they should pay for the additional congestion they create, thus encouraging the redistribution of the demand in space or in time,<ref name=Button>{{Cite book | last = Button | first = Kenneth J. | year = 1993 | title = Transport Economics 2nd Edition | publisher = [[Edward Elgar Publishing]] Ltd, England | isbn = 978-1-85278-523-9 | page = [https://archive.org/details/transporteconomi0000butt/page/153 153] | url = https://archive.org/details/transporteconomi0000butt/page/153 }}</ref><ref name=Small>{{Cite book|author1=Small, Kenneth A. |author2=Verhoef, Erik T. | title = The Economics of Urban Transportation | year = 2007 | publisher = Routledge, New York| isbn = 978-0-415-28515-5| page = 120}}</ref> or shifting it to the consumption of a [[substitute good|substitute public good]]; for example, switching from private transport to public transport.

This pricing mechanism has been used in several public utilities and public services for setting higher prices during congested periods, as a means to better manage the demand for the service, and whether to avoid expensive new investments just to satisfy peak demand, or because it is not economically or financially feasible to provide additional capacity to the service. Congestion pricing has been widely used by [[telephone]] and [[Electric utility|electric utilities]], [[rapid transit|metros]], [[railway]]s and [[autobus]] services,<ref>{{Cite book | year = 1996 | title = Sustainable Transport: Priorities for Policy Reform |url=https://books.google.com/books?id=zNuH2kN5M3sC&pg=PA48 | publisher = The World Bank, Washington, D.C.| isbn = 978-0-8213-3598-7| pages = 48–49}}</ref> and has been proposed for charging [[internet access]].<ref>{{cite magazine |author1=Henderson, Tristan |author2=Crowcroft, Jon|author3=Bhatti, Saleem |name-list-style=amp |url=http://www.cs.st-andrews.ac.uk/~tristan/pubs/ieeeic01.pdf |title=Congestion Pricing – Paying Your Way in Communication Networks |magazine=IEEE Internet Computing |date= September–October 2001 |access-date=2008-03-01 |url-status=dead |archive-url=https://web.archive.org/web/20080627154821/http://www.cs.st-andrews.ac.uk/~tristan/pubs/ieeeic01.pdf |archive-date=2008-06-27 }}</ref> It also has been extensively studied and advocated by mainstream transport economists for [[port]]s, [[waterway]]s, [[airport]]s and [[road pricing]], though actual implementation is rather limited due to the controversial issues subject to debate regarding this policy, particularly for urban roads, such as undesirable distribution effects, the disposition of the revenues raised, and the social and political acceptability of the congestion charge.<ref>{{Cite journal | last = Button | first = Kenneth J. | year = 1993 | title = op. cit.| pages = 154–156}}</ref><ref name="Ref-1">{{Cite journal|author1=Small, Kenneth A. |author2=Verhoef, Erik T. | title = op. cit| year = 2007| pages = 125–127}}</ref>

[[File:Congestion Pricing Flowchart.png|thumb|An introductory flowchart describing congestion pricing]]

Congestion pricing is one of a number of alternative [[Demand side economics|demand side]] (as opposed to [[supply side]]) strategies offered by economists to address [[traffic congestion]].<ref name="prm_winter_1995">{{cite journal |title=Congestion Control and Demand Management |author1=Sheldon G. Strickland |author2=Wayne Ber |date=Winter 1995 |volume=58 |issue=3 |journal=Public Roads Magazine |url=http://www.tfhrc.gov/pubrds/winter95/p95wi1.htm |access-date=2008-02-28 |archive-url=https://web.archive.org/web/20080317165147/http://www.tfhrc.gov/pubrds/winter95/p95wi1.htm |archive-date=2008-03-17 |url-status=dead }}</ref>  Congestion is considered a negative [[externality]] by economists.<ref name=Ibañez>{{Cite book | last1 = Small | first1 = Kenneth A. | last2 = José A. Gomez-Ibañez | year = 1998 | title = Road Pricing for Congestion Management: The Transition from Theory to Policy| publisher = The University of California Transportation Center, University of California at Berkeley| page = 213 }}</ref> An externality occurs when a transaction causes costs or benefits to a third party, often, although not necessarily, from the use of a public good: for example, if manufacturing or transportation cause air pollution imposing costs on others when making use of public air.  Congestion pricing is an [[Pareto efficiency|efficiency pricing]] strategy that requires the users to pay more for that public good, thus increasing the welfare gain or net benefit for society.<ref>{{Cite journal | last = Button | first = Kenneth J. | year = 1993 | title = op. cit.| page = 153}}</ref><ref>{{Cite journal|author1=Small, Kenneth A. |author2=Verhoef, Erik T. | title = op. cit| year = 2007| page = 120}}</ref>

Nobel-laureate [[William Vickrey]] is considered by some to be the father of congestion pricing, as he first proposed adding a distance- or time-based fare system for the [[New York City Subway]] in 1952.<ref>{{cite web|url=http://www.columbia.edu/cu/pr/96/18968.html|title=Nobelist William S. Vickrey: Practical Economic Solutions to Urban Problems |publisher=[[Columbia University]]|date=1996-10-08|access-date=2009-03-27}}</ref><ref name="NYT0207"/><ref>{{cite web |author=Vickrey |first=William |author-link= |year=1992 |title=Principles of Efficient Congestion Pricing |url=http://www.vtpi.org/vickrey.htm |access-date=2009-03-10 |publisher=[[Victoria Transport Policy Institute]]}}</ref> In the road transportation arena these theories were extended by [[Maurice Allais]], Gabriel Roth who was instrumental in the first designs and upon whose [[World Bank]] recommendation the first system was put in place in Singapore.<ref name=WB1996>{{Cite book | last = Walters | first = A. A. | year = 1968 | title = The Economics of Road User Charges| publisher = World Bank Staff Occasional Papers Number Five, Chapter VII, Washington, D.C. pp. 191–217| isbn = 978-0-8018-0653-7}}</ref> Also, it was considered by the [[Smeed Report]], published by the British [[Department for Transport|Ministry of Transport]] in 1964,<ref>{{cite book |last=Smeed |first=R.J. |year=1964 |title=Road pricing: the economic and technical possibilities |url=https://archive.org/details/op1265810-1001 |publisher=HMSO}}</ref> but its recommendations were rejected by successive British governments.<ref name="t_20050606">{{cite news |title=Radical dreams for the future of transport haunted by past failures |author1=Ben Webster |author2=Michael Evans |date=2005-06-06 |work=The Times |publisher=Times Newspapers |url=http://www.timesonline.co.uk/tol/news/uk/article530470.ece |archive-url=https://web.archive.org/web/20070209114621/http://www.timesonline.co.uk/tol/news/uk/article530470.ece |url-status=dead |archive-date=February 9, 2007 |access-date=2008-02-28 | location=London}}</ref>

The transport economics rationale for implementing congestion pricing on roads, described as "one policy response to the problem of congestion", was summarized in testimony to the [[United States Congress]] Joint Economic Committee in 2003: "congestion is considered to arise from the mispricing of a good; namely, highway capacity at a specific place and time. The quantity supplied (measured in lane-miles) is less than the quantity demanded at what is essentially a price of zero. If a good or service is provided free of charge, people tend to demand more of it—and use it more wastefully—than they would if they had to pay a price that reflected its cost. Hence, congestion pricing is premised on a basic economic concept: charge a price in order to allocate a scarce resource to its most valuable use, as evidenced by users' willingness to pay for the resource".<ref name=USCongress>{{cite web|author= Holtz-Eakin, Douglas | date=2003-05-06|url=http://www.cbo.gov/ftpdoc.cfm?index=4197|title= Congestion Pricing for Highways (Testimony before the Joint Economic Committee, U.S. Congress) |access-date=2008-02-26|publisher = Congressional Budget Office|archive-url=https://web.archive.org/web/20080214064914/http://www.cbo.gov/ftpdoc.cfm?index=4197 <!--Added by H3llBot-->|archive-date=2008-02-14 }}</ref>

As applied to traffic, there are technically two types of congestion pricing. Cordon or area pricing defines the boundaries of an affected area -- typically an area of dense travel demand such as a city center -- and charges for personal vehicles to cross its boundaries.  Lane or facility pricing charges for access to a single facility, such as a segment of road or bridge. In practice, the term "congestion pricing" is often used to refer to cordon pricing but not facility pricing, as this is a newer idea.<!-- Work in progress. Needs to improve is less technical terms and references. Text edited from K. Button (1993) combined with Gomez-Ibanez (1999) Transportation Economics and Policy. Feel free to work on it
In economic terms, the optimal price of a public good must allow for resource allocation which maximises welfare, and because [[Welfare economics|social welfare]] is maximised when price is equated to the marginal cost, congestion charges should be set as the difference between the average cost and the marginal cost. The revenues generated by the congestion pricing mechanism usually go to the government, or can be redistributed to the users of the public good. Economists have different views on how to estimate the optimal price in practice, and to whom and how the revenues generated from congestion pricing should be redistribute.
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