Congestion in the bathtub

This paper presents a model of urban traffic congestion that allows for hypercongestion. Hypercongestion has fundamental importance for the costs of congestion and the effect of policies such as road pricing, transit provision and traffic management, treated in the paper. In the simplest version of the model, the unregulated Nash equilibrium is also the social optimum among a wide range of potential outcomes and any reasonable road pricing scheme will be welfare decreasing. Large welfare gains can be achieved through road pricing when there is hypercongestion and travelers are heterogeneous. Anybody living in a major city will appreciate that congestion is a significant issue for economic policy. For the US, for example, it is estimated that urban road congestion in 2011 caused a total of 5.5 billion hours of delay (Schrank et al., 2012). Congestion is not only costly. It also has impacts on the local economy, it affects the functioning of labor markets, and it is an offsetting force balancing urban agglomeration effects. It is therefore important for a range of economic issues to understand the nature of urban traffic congestion. ∗Technical University of Denmark, Denmark, and Royal Institute of Technology, Sweden, [email protected]. I have benefited from comments by Ken Small, Jan Brueckner, Per Olsson, Jos van Ommeren, Antonio Russo, conference audiences in Atlanta, Copenhagen, Toulouse and Stockholm, as well as support from the Danish Strategic Research Council. I am particularly happy to have received many insightful comments from Richard Arnott. See, e.g., Duranton and Puga (2004), Rosenthal and Strange (2004), Moretti (2011).