André De Palma, Cergy-Pontoise University / Ecole Nationale des Ponts et Chaussées/ Senior member of Institut Universitaire de France, FRANCE, Cergy-Pontoise, France, Robin Lindsey, Department of Economics
University of Alberta, Edmonton, Canada, Moez Kilani, Department of Quantitative Economics
Université de Sousse, Sousse, Tunisia
Congestion pricing and pavement maintenance with competing toll roads (assigned to theme
Road traffic creates two external costs that are borne largely by drivers: congestion and road damage. Few studies have considered the two externalities together, and to the best of our knowledge none has examined them in a competitive environment. This paper undertakes a preliminary analysis for a simple road network with two parallel roads linking a common origin and destination. Potential users decide whether to make a trip and if so on which road. Surface quality on each road depreciates as a function of usage and weathering, but can be sustained by maintenance. The two roads are managed by competing public or private operators who play a three-stage game in (1) capacities, (2) maintenance levels, and (3) tolls. The solution concept is subgame-perfect Nash equilibrium. The first part of the analysis addresses existence and stability of interior equilibria in which both roads are maintained at positive levels. An interior equilibrium is shown to exist when capacities are sufficiently high. The second part of the analysis focuses on the comparative statics properties of the model, and on presentation of illustrative numerical examples. In addition to private and mixed (public–private) duopolies, first-best optimum and monopoly outcomes are computed as benchmarks. Compared to the first-best solution it is found that private operators exhibit a tendency to under-invest in capacity, over-spend on maintenance, and set excessive tolls.
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