Pricing, Capacity Choice, and Financing in Transportation Networks*

This paper explores interrelations between pricing, capacity choice, and financing in transportation networks. We build on the Mohring-Harwitz result on self-financing of optimally designed and priced roads and investigate it in a network environment under various types of second-best regulation. A small network model with endogenous car ownership demonstrates that optimal congestion pricing and capacity choice over an entire network may cause user prices to increase more in initially mildly congested areas compared to heavily congested areas. Furthermore, a flat kilometer charge under optimal capacity choice may result in first-best efficiency