53 Pages Posted: 4 Sep 2016 Last revised: 17 May 2017
Date Written: May 12, 2017
Congestion pricing offers an appealing solution to urban parking problems. Charging varying rates across time and space as a function of congestion levels may shift demand and improve allocation of limited resources. It aims to increase the accessibility of highly desired public goods to consumers who value them and to reduce traffic caused by drivers searching for available parking spaces. Using data from the City of San Francisco, both before and after the implementation of a congestion pricing parking program, we estimate the welfare implications of the policy. We use a two-stage dynamic search model to estimate consumers' search costs, distance disutilities, price sensitivities and trip valuations. We find that congestion pricing increases consumer and social welfare in congested regions but may hurt welfare in uncongested regions. Interestingly, despite the improved availability, congestion pricing may not necessarily reduce search traffic, because highly dispersed prices also induce consumers to search for more affordable spaces. In such cases, a simpler pricing policy may actually achieve higher welfare than a complex one. Lastly, compared to capacity rationing that imposes limits on parking durations, congestion pricing increases social welfare and has an ambiguous effect on consumer welfare. The insights from SFpark offer important implications for local governments considering alternatives for managing parking and congestion, and for public sector managers to evaluate the tradeoffs between regulation vs. market-based approaches to manage public resources.
Keywords: Congestion Pricing, Consumer Welfare, Search Model
Suggested Citation: Suggested Citation
Feldman, Pnina and Li, Jun and Tsai, Hsin-Tien, Welfare Implications of Congestion Pricing: Evidence from SFpark (May 12, 2017). Ross School of Business Paper No. 1330. Available at SSRN: https://ssrn.com/abstract=2834019