Welfare Implications of Congestion Pricing: Evidence from SFpark
43 Pages Posted: 4 Sep 2016 Last revised: 23 Oct 2018
Date Written: December 15, 2017
Congestion pricing offers an appealing solution to urban parking problems---charging varying rates across time and space as a function of congestion 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. On the other hand, a complex policy makes it harder on consumers to make search-based decisions. Our goal in this paper is to investigate the effect of congestion pricing on social and consumer welfare. Our research contributes to the theory and practice of managing scarce resources in the public sector, where welfare is of particular interest. Methodologically, we contribute to the literature on structural estimation of dynamic search models. 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 structurally 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, where the key focus should be on increasing utilization. Moreover, an unnecessarily complex congestion-pricing scheme makes it difficult for consumers to make search-based decisions. We find that a simpler pricing policy may actually achieve higher welfare than a complex one. Lastly, compared to a policy that imposes limits on parking durations, congestion pricing increases social welfare by allocating the scarce resource to consumers who value it most. The insights from SFpark offer important implications for local governments considering alternatives for managing parking and congestion, and for public sector managers evaluating the tradeoff between approaches to manage public resources.
Keywords: Congestion Pricing, Consumer Welfare, Search Model
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