Estimating the welfare effect of congestion taxes: The critical importance of other distortions within the transport system

This paper extends the first-best analysis of peak-period congestion pricing to account for interactions with other distortions within the transport system, including congestion on unpriced routes, accident and pollution externalities, suboptimal transit pricing, and gasoline taxes. We illustrate how the presence of each of these distortions changes the welfare effect of a congestion tax over a wide range of parameter scenarios. In all cases the welfare changes are potentially significant, implying that these distortions are important to consider in an economic evaluation of congestion taxes. (C) 2001 Elsevier Science (USA).