A Political Economy Model of Road Pricing

37 Pages Posted: 2 Jul 2010

See all articles by Bruno De Borger

Bruno De Borger

University of Antwerp - Department of Economics

Stef Proost

KU Leuven - Department of Economics

Date Written: June 1, 2010

Abstract

In this paper, we take a political economy approach to study the introduction of urban congestion tolls, using a simple majority voting model. Making users pay for external congestion costs is for an economist an obvious reform, but successful introductions of externality pricing in transport are rare. The two exceptions are London and Stockholm that are characterized by two salient facts. First, the toll revenues were tied to improvements of public transport. Second, although a majority was against road pricing before it was actually introduced, a majority was in favor of the policy reform after its introduction. This paper constructs a model to explain these two aspects. Using a stylized model with car and public transport, we show that it is easier to obtain a majority when the toll revenues are used to subsidize public transport than when they are used for a tax refund. Furthermore, introducing idiosyncratic uncertainty for car substitution costs, we can explain the presence of a majority that is ex ante against road pricing and ex post in favor. The ex ante majority against road pricing also implies that there is no majority for organizing an experiment that would take away the individual uncertainty.

Keywords: Road Pricing, Acceptability of Tolls, Policy Reform, Earmarking of Toll Revenues, Pigouvian Taxes

JEL Classification: D72, H23, R48

Suggested Citation

De Borger, Bruno and Proost, Stef V., A Political Economy Model of Road Pricing (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1633425 or http://dx.doi.org/10.2139/ssrn.1633425

Bruno De Borger (Contact Author)

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32/3/220.40.31 (Phone)
+32/3/220.47.99 (Fax)

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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