Toward the Evaluation of Value Pricing

Value pricing—a form of multiclass service in which the user has the choice of an unpriced standard service or a faster service that is priced—has often been evaluated by comparison with high-occupancy vehicle lanes and also by inclusion of additional capacity as part of the project alternative. From the standpoint of benefit–cost analysis, this is not the right comparison. The question of whether to invest in additional capacity should be kept separate from the best way to operate it. Value pricing should be judged against other ways of using the same physical capacity, specifically, a single-class service either priced or unpriced. In addition, two factors not explicitly included in previous evaluations—partitioning a single facility into separate services diminishes total capacity, and capacity may be further reduced if the traffic flow goes from saturated to oversaturated (hypercongestion)—give multiclass service a significant disadvantage to overcome relative to single-class service. The net benefits of value pricing thus depend on whether the heterogeneity of vehicle time values (through occupancy or individual time values) is great enough to overcome the disadvantages of creating separate facilities for each service. The points are illustrated via a simplified numerical example that concentrates on only operational considerations and assumes a given total hourly traffic flow, so the results are no more than suggestive.