Modelling social welfare effects of relocation and road pricing

Abstract

Road pricing is a popular congestion reduction strategy. However, there may be wider impacts associated with a road toll. We consider a factor which is sometimes overlooked, namely that workers and rms may choose to change location in response to changes in the travel costs. A spatial equilibrium model is used to analyse suboptimalities in road pricing which may occur if relocations are ignored. We show that such suboptimalities can be substantial. The advantage of the model we use over many existing approaches is that it is easy to implement, and requires very little data.