Second best toll and capacity optimisation in networks: solution algorithm and policy implications

This paper looks at the first and second best jointly optimal toll and road capacity investment problems from both policy and technical oriented perspectives. On the technical side, the paper investigates the applicability of the constraint cutting algorithm for solving the second best problem under elastic demand which is formulated as a bilevel programming problem. The approach is shown to perform well despite several problems encountered by our previous work in Shepherd and Sumalee (Netw. Spat. Econ., 4(2): 161–179, 2004). The paper then applies the algorithm to a small sized network to investigate the policy implications of the first and second best cases. This policy analysis demonstrates that the joint first best structure is to invest in the most direct routes while reducing capacities elsewhere. Whilst unrealistic this acts as a useful benchmark. The results also show that certain second best policies can achieve a high proportion of the first best benefits while in general generating a revenue surplus. We also show that unless costs of capacity are known to be low then second best tolls will be affected and so should be analysed in conjunction with investments in the network.

Agachai SumaleeEmail:

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Andrew Koh   Prior to joining the Institute for Transport Studies in December 2005, Andrew was employed for number of years as a consultant in highway assignment modelling. He is an economist with wide ranging research interests in transport economics as well as evolutionary computation heuristics such as genetic algorithms, particle swarm optimisation and differential evolution. Simon Shepherd   At the Institute for Transport Studies since 1989, he gained his doctorate in 1994 applying state-space methods to the problem of traffic responsive signal control in over-saturated conditions. His expertise lies in modelling and policy optimisation ranging from detailed simulation models through assignment to strategic land use transport models. Recently he has focussed on optimisation of road user charging schemes and is currently working on optimal cordon design and system dynamics approaches to strategic modelling. Agachai Sumalee   Agachai is currently an Assistant Professor at Department of Civil and Structural Engineering, Hong Kong Polytechnic University (). He obtained a Ph.D degree with the thesis entitled “Optimal Road Pricing Scheme Design” at Leeds University in 2004. His research areas cover transport network modeling and optimization, stochastic network modeling, network reliability analysis, and road pricing. Agachai is currently an associate editor of Networks and Spatial Economics.