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See detailModal choice and optimal congestion
David, Quentin UL; Foucart, Renaud

E-print/Working paper (2012)

We study the choice of transportation modes within a city where commuters have het- erogeneous preferences for a car. As in standard models of externalities, the market outcome never maximizes aggregate ... [more ▼]

We study the choice of transportation modes within a city where commuters have het- erogeneous preferences for a car. As in standard models of externalities, the market outcome never maximizes aggregate welfare. We show that in the presence of multiple equilibria prob- lems of coordination can worsen this result. Hence, a social planner focusing on the marginal impact of policies may miss the largest source of inefficiency. We discuss two policy tools: taxation and traffic separation (e.g. exclusive lanes for public transportation). Setting the optimal levels of taxation and of traffic separation constitutes a necessary but not a sufficient condition to reach the first best equilibrium. Comparing the relative efficiency of both poli- cies, we show that traffic separation should be preferred for large-scale policies while taxation better applies to marginal modifications of commuting patterns. [less ▲]

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