Second-best policies for congestion externalities

Abstract

This is the third in a series of three articles on the topic of congestion externalities. We use an urban general-equilibrium model to test the efficiency of several second-best policies for congestion externalities. The most efficient second-best policy is a program of land-use controls; the program generates a welfare gain of $3.38 per household per week. A unit tax on commuting is a less efficient policy, with a welfare gain of $1.15.