using the road to increase. During off-peak hours, however, the cost is low and drivers
pay a lower price.
From the equity perspective, trading in the auction market allows revenues to be returned
to drivers who decide to car pool or use other alternative routes. The main weakness in
the marginal cost pricing is its regressivity when the revenues are not returned, as it
benefits those with high value of travel time (Evan (1992) and Arnott et al. (1994)). This
redistribution concern is to some extent overcome by the revenue earned through buying
and reselling the permits in the auction market.
References
Arnott, R., de Palma, A. and Lindsey, R. (1994). The welfare effects of congestion tolls
with heterogeneous commuters. Journal of Transport Economics and Policy, 28:139-
161.
Cason, T. N. and Friedman, D. (1996). Price formation in double auction markets.
Journal ofEconomic Dynamics and Control, 20:1307-1337.
Evan, A. (1992). Road congestion pricing: when is it a good policy? Journal of
Transportation Economics and Policy, 26(3):213-244.
Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments.
Experimental Economics, 10(2):171-178.
Friedman, D. (1984). On the efficiency of experimental double auction markets.
American Economic Review, 74(1):60-72.
Goddard, H. C. (1997). Sustainability, tradeable permits and the world’s large cities: a
new proposal for controlling vehicle emissions, congestion and urban decentralization
with an application to Mexico City. International Journal of Environment and Pollution,
7:357-374.
Graham, D. J. and Glaister, S. (2002). The demand for automobile fuel: A survey of
elasticities. Journal of Transport Economics and Policy, 36(1):1-26.
Hahn, R. and Hester, G. (1989). Marketable permits: lessons for theory and practice.
Ecology Law Quarterly, 16:361-406.
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