I have not yet been convinced that congestion charging, as a general concept, makes sense (especially given the lack of any comments on the post 😉 ). However, this does not mean that there won’t be a general set of circumstances where this type of toll charge does make sense.
One situation I can think of is as follows. Suppose you have a long piece of road, and along the way vehicles join that road. Now, the vehicles that are joining the stream of traffic create an externality for all the vehicles that are downstream of them – but they do not have to face the cost of this at any point. As a result, they are not facing the full social cost of their actions.
If we look at the vehicles joining the traffic stream at this point as the “marginal” vehicles then we can see that, even though on average the cost externality falls on those that perpetuate it, at the margin an additional vehicle faces a lower cost for congestion than the congestion they create! Since people make decisions at the margin we will have “too many” vehicles entering from side streets, and “too much” congestion.
In this case, we should toll the side roads coming onto the motorway. Furthermore, the closer these roads are to the city (which is the likely destination of most of the vehicles) the greater the charge should be.
This is my attempt to justify a toll based on congestion. Notice, in this case a blanket toll, or a toll based on the quantity of congestion isn’t the right toll – the suboptimal solution occurs because vehicles entering the motorway close to the city don’t have to face the congestion, and so do not internalise it. As a result, this gives us a clearer idea about what actually drives the suboptimal outcome, and how we can solve it.
Feel free to tell me how and why I’ve missed the point 🙂