1. Introduction
Increasing social and environmental stress caused by ever-growing levels of road usage
has created the urgent need for efficient and effective transportation policy. The many
policies employed in different countries take a variety of forms and have different
implications. Verhoef et al. (1996) categorized these policies as (1) direct demand
management aimed at directly reducing the demand for road transport through pricing,
(2) indirect demand management aimed at shifting the demand curve inwards by
affecting the factors underlying the derived demand and (3) supply side-oriented policies.
For direct demand management, the main targets are the road users themselves but supply
side-oriented policies target automobile manufacturers and fuel industries. Indirect
demand management refers to wider application in areas such as urban planning and
public transport policies. This paper is chiefly interested in direct demand management
through permit trading; the implementation and implications of the policies in the first
category will be briefly discussed and evaluated. 1
Direct demand management policy aims to reduce road demand in two different ways;
vehicle ownership and road usage. Examples of vehicle ownership are the Singapore
vehicle quota system (VQS) and car ownership taxation in Hong Kong. Such schemes
affect car ownership more than actual car usage and therefore charges on car ownership
can only affect congestion minimally except for the positive environmental impact of
new vehicle production and the rate of disposal of worn out vehicles (Verhoef et al.
(1997) ; May (1992)).
In directly policing the road usage, Goddard (1997) suggests that drivers should be
allowed to drive only on certain days. Drivers should be allowed to choose for
themselves their actual driving days, and use other transportation modes for the rest of
the week. The impact of this policy on total usage, however, may be very small as drivers
have an incentive to save trips for future usage. As a consequence, total reduction in
1 Interested readers should refer to the article by Verhoef et al. (1996) for more information about indirect
demand management and supply side-oriented policies.