Efficient Solutions to Traffic Congestion Externalities: More Complicated Than You Might Think
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Department of Applied Economics and Statistics, University of Delaware, Newark, DE.
Abstract
Through this guided activity, students will gain a deeper understanding of congestion externalities by analyzing the welfare implications of road congestion and road tolls. Students will work in groups and report-out periodically so that the instructor can check understanding and guide learning.
Description
This problem starts with a set of assumptions, which will ensure that unique answers exist. Then, there are five parts in this exercise that represent different scenarios (states of the world): 1) no congestion and no toll, 2) no congestion with a toll, 3) congestion and no toll, 4) congestion with a $9 toll; and 5) congestion with a $10 toll. Each scenario is depicted graphically, and students should derive answers from the graphs using letters for areas (rather than calculating areas). Students with more advanced economic training can compute the areas using calculus. Discussion questions are provided to help students understand the problems and analyze the outcomes of each scenario. Appendix included as RR15-05a.