Give or Take? Rewards vs. Charges for a Congested Bottleneck

Tinbergen Institute 10-062/3

52 Pages Posted: 9 Jul 2010

See all articles by Jan Rouwendal

Jan Rouwendal

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Jasper Knockaert

affiliation not provided to SSRN

Date Written: June 28, 2010

Abstract

This paper analyzes the possibilities to relieve congestion using rewards instead of taxes, as well as combinations of rewards and taxes. The model considers a Vickrey-ADL model of bottleneck congestion with endogenous scheduling. With inelastic demand, a fine (time-varying) reward is equivalent to a fine toll, and to a continuum of combinations of time-varying tolls and rewards (including fine feebates). When demand is price sensitive, a reward becomes less attractive from the efficiency viewpoint, because it attracts additional users to the congested bottleneck. As a result, both the second-best optimal rate of participation in the scheme, and the relative efficiency that can be achieved with it, decreases when demand becomes more elastic. Our analytical and simulation results for coarse schemes suggest that a coarse reward is less effective than a coarse feebate, which is itself less effective than a coarse toll. The most efficient coarse system is the step toll, which is also allowed to be positive in the shoulder period.

Keywords: Traffic congestion, Road pricing, Subsidies, Rewards, Bottleneck model

JEL Classification: R41, R48, D62

Suggested Citation

Rouwendal, Jan and Verhoef, Erik T. and Knockaert, Jasper, Give or Take? Rewards vs. Charges for a Congested Bottleneck (June 28, 2010). Tinbergen Institute 10-062/3, Available at SSRN: https://ssrn.com/abstract=1636243 or http://dx.doi.org/10.2139/ssrn.1636243

Jan Rouwendal (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Jasper Knockaert

affiliation not provided to SSRN

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