Modeling variable demand equilibrium under second-best road pricing

This paper presents a class of parameterized second-best road pricing schemes, where the toll on each tolled link is proportional to the Pigouvian charge (i.e., the difference between marginal social cost and marginal private cost). A general framework is formulated to model variable demand equilibrium under parameterized road pricing schemes of this kind, which yields an Hybrid-equilibrium (or H-equilibrium for short) solution. From an economic point of view, the formulated model is shown to be able to evaluate the parameterized pricing scheme embedded in the model. Applications including the evaluation of road pricing schemes and the issue of road pricing design are employed to highlight the attractive features of the proposed H-equilibrium formulation.