Lecture 1 Flashcards
Define congestion
The loss of speed when more cars (and trucks, buses…) use a given road, or network of roads
How else do some economists define congestion?
Economists often measure congestion in terms of “travel delay”, i.e. the extra amount of time it takes to travel one mile (or km), compared to “free flow” conditions.
What does travel time (h/km) =?
1/speed (km/h)
How do you calculate average time cost (£/km)?
Value of time (£/h) / speed (km/h)
How do we measure travel delay (due to congestion)?
(1/speed [km/h]) - (1/Free flow speed [km/h])
Which tends to be the most congested kind of road?
“A” roads include major roads within urban areas and tend to be highly congested
Give some examples of road pricing in the UK.
- London Congestion Charge
- Highway tolls, e.g. M6 toll
When building a model, what do we let V represent?
Traffic volume, ie the number of vehicles per unit of time that travel on this road.
When building a model, what do we assume when capturing congestion?
We assume a decreasing relationship between traffic volume and speed.
When building a model, what does c(V) represent? What does this assume?
This stands for the user cost of travel and assumes the only cost the user faces is time costs, which increase in V due to congestion. Also assume that this function is linear for simplicity.
How do we calculate the value to the user of going from origin to destination?
𝐵(𝑉) = v∫0 𝑏(𝑥)𝑑𝑥
Is the marginal value for an additional trip increasing or decreasing in V?
Decreasing in V
What is the social cost of an additional trip (Social Marginal
Cost)?
smc(V) = c(V) + V. 𝜕𝑐/𝜕V
Why is the Social Marginal Cost different to the private marginal cost?
As when I use the road, it negatively impacts others as well.
Do private users take into account social costs when deciding whether to travel?
No
What is the Marginal External Cost (MEC)?
The vertical difference between smc(V) and c(V).
How do we calculate social welfare?
Total benefit- Cost of travel
How do we maximise social welfare?
Set 𝜕SW/𝜕V=0
If 𝜕SW/𝜕V=0, what does V* satisfy?
b(V) = smc(V) = c(V) +V⋅𝜕𝑐/𝜕V
What does V* represent?
V* is such that the willingness-to-pay for the marginal unit of V (i.e., that of the marginal user) equals the marginal social cost
When we set a toll, what is the new equilibrium?
b(V) = gen. price = c(V) + τ
What does the optimal toll =?
Optimal toll equals the marginal external cost
Why is a toll useful?
As it makes users internalise the external cost of congestion.
What is DWL from excessive congestion?
DWL is the difference between the social marginal cost of travel and the social benefit (user valuation), for all travel that exceeds the socially optimal volume
* It is a DWL because this excessive volume of travel is inefficient (cost higher than benefit for each trip), a pure loss to society: welfare increases by eliminating it
