Congestion, quality deterioration, and heterogeneous tastes

Abstract

The problem of congestion is analyzed as a consumption externality in a model in which the market demand of consumers of facility services reflects heterogenous taste for congestion avoidance and individual willingness to pay is a function of the aggregate level of facility use. The analysis demonstrates that the Pareto optimal toll for facility use depends on the pattern by which congestion cost is distributed among facility users. In general, this optimal toll will deviate from that derived from the standard analysis.