Private Access Fees and Congestion: is There a Role for Government After All?
Abstract: We reframe an important debate between Pigou and Knight about the need for government intervention in allocating congestible resources like roads. Knight showed that private toll-setting would achieve an efficient allocation if some motorists commuted to work on an alternative route that was uncongestible. Government intervention was unnecessary. Others have shown that Knight's laissez-faire solution fails if the other road was also congestible but marred their demonstration by excluding private toll-setting on that road as well. We consider a game with simultaneous toll-setting on every congestible road. When we discover that the laissez-faire allocation is inefficient, we consider how the government can improve the private allocation by providing motorists an actual or potential alternative to the privately-priced, congestible resources. Our results apply to a wide range of allocation problems involving congestion: simultaneous tuition setting in private (or charter) schools when students can instead attend a public-school or simultaneous prize-setting in contests to cure diseases when researchers can instead work at NIH.
