Tuesday, June 01, 2010

Price Signals

The problem with sexy ideas like continuously varying tolling is that people aren't actually capable of responding instantly and optimally to such information. The point of congestion tolling isn't simply to soak people for some extra money, it's to reduce congestion by making them change behavior due to the increased cost of entering congested areas. While economists can construct lovely models in which tolls are set optimally minute by minute or block by block, such models assume people are capable of dealing with complex price signals in real time. They aren't. So, yes, if you want to do it keep it simple. I've long thought the simplest way to implement congestion pricing is to increase the cost of parking in the relevant area.