Can Targeted Rebates Foster Equity in Congestion Pricing Schemes?

Research Lead: James Sallee

University: UC Berkeley

Problem Statement: How can congestion pricing be implemented without creating undo harm to vulnerable populations? The economically efficient solution to congested roads is congestion pricing. But imposing efficient pricing schemes can lead to inequitable outcomes. Lower income households spend a larger share of their income on travel and often have fewer transit options and less flexibility in their commuting schedule. There are several options for fostering greater equity in road pricing schemes, ranging from exemption of some users, targeted investments of program revenue in transit, or modifications of cordon areas. These methods suffer from dual problems in terms of both politics and economics. Targeted transit investments and other expenditures aimed at vulnerable populations, even if properly executed, do not provide transparent and salient benefits that engender community buy in. Other schemes that modify prices or exempt some users sacrifice program efficiency. Targeted rebates—schemes that return a portion of program revenue back to households via lump sums as a function of their demographic characteristics—can be simultaneously salient, well targeted, and economically efficient. But little attention has been given to such schemes, and policymakers may not understand relevant strengths and limitations.

Project Description: Researchers will address this gap in knowledge regarding targeted rebates in three steps. First, the research will develop an economic model that characterizes the efficiency and equity properties of targeted rebates. The second step will test the (hypothetical) performance of targeted rebates using real program data. For this purpose, the study will use data available from the Traffic Choices Study implemented in the Seattle area by the Puget Sound Transportation Authority. Using those data, the research team will quantify the key dimensions of heterogeneity across households (namely in total policy burden and in price responsiveness) and use that to evaluate how effective targeted rebates are in ensuring equity of final outcomes. Program data will also be used to compare the efficiency and effectiveness of targeted rebates to an alternative mechanism, which is the exemption of low-income users from the pricing program. Third, the research will analyze survey data from California from the 2017 National Household Travel Survey California Add-On to explore the viability of targeted rebates in the California context.

Status: In Progress

Budget: $62,297