Delayer Pays Principle: Examining Congestion Pricing with Compensation

Abstract

Despite its virtues, congestion pricing has yet to be widely adopted. This paper explores the issues of equity and use of toll revenue and several possible alternatives. The equity and efficiency problems of conventional (uncompensated) congestion pricing are outlined. Then, several alternatives are discussed and developed. A new compensation mechanism is developed, called the delayer pays principle. This principle ensures that those who arecause delay to others pay a toll to compensate those who are delayed. We evaluate the effectiveness of this idea by simulating alternative tolling approaches and evaluating the results across several measures, including delay, social cost, consumer surplus, and equity. Different tolling approaches can satisfy widely varying policy objectives, thus this principle is applicable in diverse situations. Such a system is viable and can eliminate some common hurdles of congestion pricing while remaining revenue neutral.