The Welfare Effects of Cordon Pricing and Area Pricing<BR> Simulation with a Multi-regional General Equilibrium Model

This paper analyses the welfare effects of cordon pricing and area pricing through numerical simulations with a multi-regional general equilibrium model. The toll policies achieve approximately 60 per cent of the efficiency gains from the Pigouvian congestion tax. Cordon pricing is better if long-distance commuting is prevalent, while area pricing is better if a city has a large central urban area. With the introduction of cordon pricing or area pricing, a toll district becomes more attractive as a residential place but less attractive as a workplace. The toll policies promote short-distance commuting but discourage the use of public transport in toll-free commutes. © 2011 LSE and the University of Bath