Against all Odds: Nash Equilibria in a Road Pricing Experiment

Congested roads during rush-hours create a common-pool problem in which individual rationality results in inefficienCcies. They are not a mere nuisance for commuters but impose social costs that can be reduced by implementing a system of user fees: road pricing. Road pricing promises substantial efficiency gains if used as an instrument to achieve an efficient allocation of fixed road capacity. The road-pricing model of Arnott, R., De Palma, A., and Lindsey (1993) is tested in an experiment. Although the Nash equilibrium of the model is not unique and Nash behavior is therefore unlikely, the road-pricing experiment supports the predictions of the model as long as each player plays with one vehicle only. Allowing players to play with more than one vehicle makes the outcome more efficient. Players appear to internalize part of the externality.