Congestion Costs and Congestion Pricing

Pricing congested roads generally produces efficiency gains. Unless toll revenue is carefully distributed, however, road pricing would also make most drivers worse off, particularly those with low incomes. We analyze these potential income-distributional effects for the Twin Cities area by calculating network equilibria. Our analysis allows the demand for travel to be price-sensitive and drivers to differ in the valuations they place on time. Pricing all congested roads optimally would increase total travel costs by 18–42% depending on the elasticity of demand for travel. With unit-elastic demand, pricing would increase travel costs by 31% and 5% for, respectively, the lowest and highest income groups examined.