Intelligent Tolls

When a driver uses a busy road he is imposing a delay cost on all other drivers.  However, as road users we do not take the costs we impose on others into account, thus roads like most common resources are over used and society is worse off.

Road pricing is a method to try and internalise the costs drivers impose on others and to encourage more efficient use of the road network.  London use a congestion charge for cars entering the centre of London, and makes some mild claims about it's effectiveness.  The problem with the London congestion charge is that it is too blunt a tool.  It is a fixed charge that does not respond to demand and increased congestion.  When roads are moving freely the congestion charge should be low, when roads are choked the charge should be high to encourage drivers to find alternatives.  This is the basis of Vickrey congestion pricing.

Singapore is one of the best examples of Vickrey pricing in action.  Here is a recent report from the Financial Times and the video below the fold gives a television news report on the charges.



You can read more about Singapore's experiences with intelligent road pricing here and see also this fact sheet.  There is excellent article from Wired on The Ultimate Jam Session. IBM have been a key partner in the Electronic Road Pricing project in Singapore and produced a short TV TV ad  based on their contribution.  Some details of IBM's traffic prediction efforts are available here.

Here is a nice summary of congestion changes and an article on VoxEU has a simple cost-benefit analysis of the London congestion charge.  The New York Times discusses the possibility of uses congestion charges to speed up Manhattan's traffic.

A short extract from James Surowiecki's excellent 2004 book, The Wisdom of Crowds, which features the Singapore and London road pricing system is available here.