Pricing toll roads under uncertainty

We study the toll pricing problem when the non-toll costs on the network are not fixed and can vary over time. We assume that users who take their decisions, after the tolls are fixed, have full information of all costs before making their decision. Toll-setter, on the other hand, do not have any information of the future costs on the network. The only information toll-setter have is historical information (sample) of the network costs. In this work we study this problem on parallel networks and networks with few number of paths in single origin-destination setting. We formulate toll-setting problem in this setting as a distributionally robust optimization problem and propose a method to solve to it. We illustrate the usefulness of our approach by doing numerical experiments using a parallel network

Economics of Road Network Ownership

This paper seeks to understand the economic impact of centralized and decentralized ownership structures and their corresponding pricing and investment strategies on transportation network performance and social welfare for travelers. In a decentralized network economic system, roads are owned by many agencies or companies that are responsible for pricing and investment strategies. The motivation of this study is two-fold. First, the question of which ownership structure, or industrial organization, is optimal for transportation networks has yet to be resolved. Despite several books devoted to this research issue, quantitative methods that translate ownership-related policy variables into short- and long-run network performance are lacking. Second, the U.S. and many other countries have recently seen a slowly but steadily increasing popularity of road pricing as an alternative to traditional fuel taxes. Not only is the private sector encouraged to finance new roads, this transition in revenue mechanism also makes it possible for lower-level government agencies and smaller jurisdictions to participate in network pricing and investment practice. The issue of optimal ownership is no longer a purely theoretical debate, but bears practical importance. This research adopts an agent-based simulator of network dynamics to explore the implications of centralized and decentralized ownership on mobility and social welfare, as well as potential financial issues and regulatory needs. Components of the simulator: the travel demand model, cost functions, and key variables of pricing and investment strategies, are empirically estimated and validated. Results suggest that road network is a market with imperfect competition. While there is a significant performance lag between the optimal strategy and the current network financing practice in the U.S. (characterized by centralized control, fuel taxes, and budget-balancing investment), a completely decentralized network suffers from issues such as higher-than-optimal tolls and over-investment. For the decentralized ownership structure, appropriate regulation on pricing and investment practices is necessary. Further analysis based on simulation comparisons suggests that with appropriate price regulation, a decentralized road economy consisting of profit-seeking road owners could outperform the existing centralized control, achieve net social benefits close to the theoretical optimum, and distribute a high percentage of welfare gains to travelers. Decentralized control is especially valuable in rapidly changing environments because it promptly responds to travel demand. These results seem to favor the idea of privatizing or decentralizing road ownership on congested networks. Further tests on real-world transportation networks are necessary and should make an interesting future study.Network economics, Modeling network dynamics, Road pricing, Transportation financing, Privatization.

Private Provision of Highways: Economic Issues

This paper reviews issues raised by the use of private firms to finance, build, and/or operate highways — issues including cost of capital, level and structure of tolls, and adaptability to unforeseen changes. The public sector’s apparent advantage in cost of capital is at least partly illusory due to differences in tax liability and to constraints on the supply of public capital. The evidence for lower costs of construction or operation by private firms is slim. Private firms are likely to promote more efficient pricing. Effective private road provision depends on well-structured franchise agreements that allow pricing flexibility, restrain market power, enforce a sound debt structure, promote transparency, and foster other social goals.Privatization; Road finance; Toll road; Road pricing

Public and private roles in road infrastructure: an exploration of market failure, public instruments and government failure

Starting with a 'greenfield' situation, we discuss reasons for market failure in road infrastructure provision. We show why it may not be optimal from a welfare perspective to leave road provision fully to the market and government intervention in this sector can improve welfare. Government intervention comes in different forms, such as financial intervention (taxation, subsidies), regulation (price, quality, environmental), and public provision of roads or road services. The analysis of the literature regarding government instruments allows us to establish a correspondence between different forms of market failure and instruments. Several case studies of particular road infrastructure projects are included to illustrate the use of government instruments.

Acceptability of road pricing and revenue use in the Netherlands

It is generally acknowledged that the implementation of other, more efficient, road pricing measures meet public resistance and that acceptability is nowadays one of the major barriers to successful implementation. Despite the fact that politicians and the public regard transport problems as very urgent and important, people do have concerns about road pricing, resulting in low acceptance levels. This paper presents the empirical results of a questionnaire among Dutch commuters regularly facing congestion asking for their opinion (in terms of acceptance) on road pricing measures and revenue use targets. We find that road pricing is in general not very acceptable and that revenue use is important for the explanation of the level of acceptance. Road pricing is more acceptable when revenues are used to replace existing car taxation or to lower fuel taxes. Moreover, personal characteristics of the respondent have an impact on support levels. Higher educated people, as well as respondents with a higher value of time and with higher perceived effectiveness of the measure, seem to find road pricing measures more acceptable than other people. The same holds for people that receive financial support for their commuting costs and for respondents driving many kilometers in a year. When we ask directly for the acceptability of different types of revenue use (not part of a road pricing measure), again abandoning of existing car (ownership) taxes receives most support whereas the general budget is not acceptable.

US Highway Privatization and Heterogeneous Preferences

Abstract: We assess the welfare effects of highway privatization accounting for government’s behavior in setting the sale price, firms’ strategic behavior in setting tolls in various competitive environments, and motorists’ heterogeneous preferences for speedy and reliable travel. We conclude motorists can benefit from privatization if they are able to negotiate aggressively with a private provider to obtain tolls and service that align with their varying preferences. Surprisingly, motorists are likely to be better off negotiating with a monopolist than with duopoly providers or under public-private competition. Toll regulation may be counterproductive because it would treat motorists as homogeneous. Revised June 2009.Security Breach Costs; Financial Distress; Insurance; Resource Allocation.

Road User Charging – Pricing Structures.

This project considers the extent to which the public could cope with complex price or tariff structures such as those that might be considered in the context of a national congestion pricing scheme. The key elements of the brief were: • to review existing studies of road pricing schemes to assess what information and evidence already exists on the key issues; • to identify what can be learned about pricing structures from other transport modes and other industries and in particular what issues and conclusions might be transferable; • to improve the general understanding of the relationship between information and people’s ability to respond; and • to recommend what further research would be most valuable to fill evidence gaps and enable conclusions to be drawn about an effective structure

Stochastic Dominance Approach to Evaluate Optimism Bias in Truck Toll Forecasts

Optimism bias is a consistent feature associated with truck toll forecasts, à la Standard & Poor’s and the NCHRP synthesis reports. Given the persistent problem, two major sources of this bias are explored. In particular, the ignorance of operating cost as a demand-side factor and lack of attention to user heterogeneity are found to contribute to this bias. To address it, stochastic dominance analysis is used to assess the risk associated with toll revenue forecasts. For a hypothetical corridor, it is shown that ignorance of operating cost savings can lead to upward bias in the threshold value of time distribution. Furthermore, dominance analysis demonstrates that there is greater risk associated with the revenue forecast when demand heterogeneity is factored in. The approach presented can be generally applied to all toll forecasts and is not restricted to trucks.Forecast Bias; Operating costs; Risk assessment; Savings; Stochastic Dominance; Tolls;Trucks

Road Pricing with Autonomous Links

This research examines road pricing on a network of autonomous highway links. By autonomous it is meant that the links are competitive and independent, with the objective of maximizing their own profits without regard for either social welfare or the profits of other links. The principal goal of the research is to understand the implications of adoption of road pricing and privatization on social welfare and the distribution of gains and losses. The specific pricing strategies of autonomous links are evaluated first under the condition of competition for simple networks. An agent-based modeling system is developed which integrates an equilibrated travel demand, route choice, and travel time model with a repeated game of autonomous links setting prices to maximize profit. The levels of profit, welfare consequences, and potential cooperative arrangements undertaken by autonomous links will be evaluated. By studying how such an economic system may behave under various circumstances, the effectiveness of road pricing and road privatization as public policy can be assessed.Network dynamics, road pricing, autonomous links, privatization, agent-based transportation model