The combined equilibrium of business land-use and its congestion pricing principles (working paper)

TL;DR

This paper develops a unified model of business land-use and traffic equilibrium, proposing optimal congestion pricing schemes that can minimize social costs and improve overall system efficiency.

Contribution

It introduces a new combined equilibrium model integrating traffic and business location choices, and proves the existence of optimal congestion pricing schemes for social cost reduction.

Findings

Existence of an optimal road pricing scheme minimizing social costs.

A generalized link-based optimal road pricing scheme is proposed.

Numerical example shows the pricing scheme reduces social costs.

Abstract

This working paper is divided into two parts. Firstly, we develop a new combined equilibrium model of business land-use, which puts travelers' traffic equilibrium and business companies' competitive location equilibrium into a unified framework. A variational inequality is presented for the combined equilibrium and the properties of equilibrium solution are investigated. Secondly, the congestion pricing principles associated with the combined equilibrium are studied. From the mathematical point of view, we prove that there exists an optimal road pricing scheme that can minimize the social cost of travelers. This road pricing scheme generalizes the traditional link-based optimal road pricing scheme. Furthermore, when simultaneously imposing charges on travelers and companies is allowed, we prove that there exists an optimal congestion pricing scheme that can derive a combined equilibrium toward an overall system optimum. The economic meaning of every pricing scheme proposed in this paper is discussed in detail. At last, a simple numerical example is used to demonstrate that the optimal congestion pricing scheme may indeed reduce the social cost.