ABSTRACT
Highway congestion increases motorists’ travel times and contributes to urban sprawl by raising the price of homes that are close to employment centers. We analyze the costs and benefits of congestion pricing accounting for its effects on highway travel conditions and on land use. We do so by estimating a hedonic model of housing prices that is influenced by travel delays and unpriced congestion, and by elements of land use, such as citywide density and the spatial variation in density. Based on a sample of ninety-eight of the largest metropolitan statistical areas (MSAs) in the nation, we find that efficient road pricing would generate $120 billion in annual revenues (2000 dollars) while reducing the value of the annual flow of services from housing by $80 billion, thus generating an annual net benefit of $40 billion. Our estimate of the benefits of congestion pricing is considerably greater than previous estimates that do not account for adjustments in land use, and suggests that the government could retain a sizable amount of toll revenues to finance the nation’s road system and use part of the revenues to offset residents’ losses.
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