Optimal cordon pricing

Abstract This paper presents a simple spatial model of traffic congestion for a monocentric city to investigate the effects of cordon pricing on trip-making and congestion level in each location. Optimal cordon pricing is obtained as a combination of the cordon location (i.e., distance of the cordon from the CBD) and the amount of toll charged there that maximizes the total social surplus in a city. Under optimal cordon pricing, trips originating from locations inside the cordon are under-priced, those just outside the cordon are over-priced and those near the urban fringe are under-priced. Numerical simulations using the parameter values based on Japanese data suggest that cordon pricing attains an economic welfare level very close to the first-best optimum.

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