Instruments for Charging Congestion Externalities

Abstract

Traffic congestion appears to be a pervasive phenomenon in many cities worldwide. The traditional relief measure has been to build ourselves out of traffic congestion, but this “solution” encounters increasingly tight budgetary constraints as well as locational restraints, not to mention the adverse environmental consequences (in terms of air and noise pollution) that typically accompany capacity expansion of an urban road network. Similarly, subsidies to improve public transportation are frequently costly to provide for and are not always effective. In contrast to the costly option of increasing the supply side, traffic management measures on the demand side have increasingly become indispensable instruments of combatting congestion. There are two broad classifications of demand management measures — one “command and control” based and the other “market-based”.