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Private Road Networks with Uncertain Demand

Author

Listed:
  • Xinying Fu

    (VU University Amsterdam, the Netherlands)

  • Vincent van den Berg

    (VU University Amsterdam, the Netherlands)

  • Erik T. Verhoef

    (VU University Amsterdam, the Netherlands)

Abstract
We study the efficiency of private supply of roads under demand uncertainty and evaluate various regulatory policies. Due to demand uncertainty, capacity is decided before demand is known but tolls can be adjusted after demand is known. Policy implications can differ from those under deterministic demand. For instance, for serial links, the toll in the second-best zero-profit case is no longer equal to the marginal external congestion cost. In the first-best scenario, the capacity under uncertain demand is higher than that under the deterministic demand of the same expected value, though self-financing still holds in expected terms. Regulation by perfect competitive auction cannot replicate the second-best zero-profit result and thus leads to a lower welfare, whereas without uncertainty various forms of competitive auctions can attain this second-best optimum. For more complex networks, when private firms add capacity in turn, contrary to the case without demand uncertainty, some form of auction performs better than others with demand uncertainty.

Suggested Citation

  • Xinying Fu & Vincent van den Berg & Erik T. Verhoef, 2015. "Private Road Networks with Uncertain Demand," Tinbergen Institute Discussion Papers 15-092/VIII, Tinbergen Institute, revised 28 Nov 2017.
    • Handle: RePEc:tin:wpaper:20150092
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    References listed on IDEAS

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    Cited by:

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    2. Huang, Naqun & Lien, Jaimie W. & Zheng, Jie, 2023. "To acquire or compete? Government intervention in transportation under different route structures," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 172(C).
    3. Shi, Shasha & Yin, Yafeng & An, Qingxian & Chen, Ke, 2021. "Optimal build-operate-transfer road contracts under information asymmetry and uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 152(C), pages 65-86.
    4. Sioshansi, Fereidoon P., 2015. "Electricity utility business not as usual," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 1-11.
    5. Fu, Yulan & Wang, Chenlan & Liu, Tian-Liang & Huang, Hai-Jun, 2021. "Parking management in the morning commute problem with ridesharing," Research in Transportation Economics, Elsevier, vol. 90(C).
    6. Berglihn, Elisabeth Cornelia & Gómez-Baggethun, Erik, 2021. "Ecosystem services from urban forests: The case of Oslomarka, Norway," Ecosystem Services, Elsevier, vol. 51(C).
    7. Qiumin Liu & Vincent A.C. van den Berg & Erik T. Verhoef & Rui Jiang, 2024. "Pricing in the Stochastic Bottleneck Model with Price-Sensitive Demand," Tinbergen Institute Discussion Papers 24-011/VIII, Tinbergen Institute, revised 22 Oct 2024.
    8. Vincent van den Berg, "undated". "Self-financing roads under coarse tolling and heterogeneous preferences," Tinbergen Institute Discussion Papers 22-045/VIII, Tinbergen Institute.
    9. Li, Zhi-Chun & Huang, Hai-Jun & Yang, Hai, 2020. "Fifty years of the bottleneck model: A bibliometric review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 311-342.
    10. van den Berg, Vincent A.C., 2024. "Self-financing roads under coarse tolling and preference heterogeneity," Transportation Research Part B: Methodological, Elsevier, vol. 182(C).

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    More about this item

    Keywords

    Traffic Congestion; Road Pricing; Uncertain Demand; Road Network; Private Supply; Auction;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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