Case Study: Road Pricing

Case Study: Road Pricing

Task 1: Concept of road pricing is introduced by Arthur. C. Pigou in 1920. However, it took a long time until it was applied in a city. Do a research on the road pricing, its application, its benefits and disadvantages defined by both academic and regulators. Write your findings in no more than 1500 words.
Task 2: In this task you are required to discuss pricing, its concept and options of pricing available in this example. Also, make sure to address the following questions:
 What price Mr. Jones is willing to pay for toll in order to reduce the time he spends in congestion? Assume he is paid $60 per hour.
 Compare his willingness to pay with a person with $15 per hour salary rates.
 As a consultant to the government, what pricing scheme would you suggest for the toll road considering the Social Welfare of people? Consider all types of road users.
Task 3: Would you suggest application of fuel tax as a substitute for Electronic Road Pricing? Compare their impact on road usage. Provide one practical example of using fuel tax as a strategy.

Task 4: In the example, two solutions of building a new highway and using of ERP have been suggested. You suggest a third solution, and then discuss pros and cons of all three options. Discuss the price of your new solution and compare it with other options.
Task 5: Assume that the government has come up with the cash flow information for the project of building a new road as shown in the table below. With the interest rate of 2% and the inflation rate of 4% and using NPV method find out whether the project is worthwhile or not. Calculation of discount factor and present value for each year is essential.
Cash Flow 0 -1,500,000
-1,000,000 2 -1,200,000
720,025 4 956,500
836,901 6 849,451
746,200 8 701,935
678,008 10 495,411
825,632 12 678,541
596,456 14 315,762
185,705 16 153,666
90,533 18 56,489
7,578 20 9,555

In this case, a road pricing system is vital in reducing congestion in the shorter route. According to Santos (2004), road pricing is the concept of requiring road users to pay a toll fee to cut down on road congestion. Introducing toll fees will lessen congestion because some other road users will be forced to use the longer route.


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