Congestion and Incentives in the Age of Driverless Cars

53 Pages Posted: 19 May 2020

See all articles by Federico Boffa

Federico Boffa

Free University of Bolzano

Alessandro Fedele

Free University of Bozen-Bolzano - Faculty of Economics and Management

Alberto Iozzi

Universita degli Studi di Roma

Date Written: May 13, 2020

Abstract

Following the development of autonomous vehicles (AVs) and GPS systems, fleets will gain prominence over private vehicles. We analyze the welfare effects of the transition from a fully decentralized regime, in which all travelers are atomistic and do not internalize the congestion externality, to a centralized regime, where all travelers are supplied by a fleet of AVs controlled by a monopolist. In our model, heterogeneous individuals differing in the disutility from congestion may travel on one of two lanes, which may endogenously differ in the level of congestion, or they may not travel. We show that the monopolist sorts travelers across the two lanes differently than the decentralized regime. Moreover, depending on the severity of congestion costs, it may also exclude some travelers. We find that centralization is always welfare detrimental when the monopolist does not ration travel. If instead rationing occurs, centralization may be welfare beneficial, provided that congestion costs are sufficiently high. We then analyze how to restore first best with road taxes. While congestion charges are optimal under decentralization, taxes differ markedly in a centralized regime, where restoring first best may require subsidizing the monopolist.

Keywords: autonomous vehicles, congestion externality, fleets, sorting, rationing.

JEL Classification: R41, R11

Suggested Citation

Boffa, Federico and Fedele, Alessandro and Iozzi, Alberto, Congestion and Incentives in the Age of Driverless Cars (May 13, 2020). CEIS Working Paper No. 484, Available at SSRN: https://ssrn.com/abstract=3600019 or http://dx.doi.org/10.2139/ssrn.3600019

Federico Boffa

Free University of Bolzano ( email )

Italy

Alessandro Fedele

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

Alberto Iozzi (Contact Author)

Universita degli Studi di Roma ( email )

Via Columbia n.2
Rome, rome 00100
Italy
39 06 7259 5923 (Phone)
39 06 204 02 19 (Fax)

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