Can Taxes Improve Congestion on All Networks?

TL;DR

This paper investigates whether monetary tolls can improve network congestion without causing worse outcomes, finding that in complex, diverse networks such incentives are unavoidable, but in simple parallel networks, non-perverse tolls exist.

Contribution

It characterizes the conditions under which tolls can improve network routing without negative side effects, especially identifying all non-perverse tolls for parallel networks.

Findings

In complex networks, improving incentives can worsen outcomes in some cases.

Non-perverse tolls are fully characterized for parallel networks.

Traditional marginal-cost tolls are a subset of the non-perverse tolls.

Abstract

We ask if it is possible to positively influence social behavior with no risk of unintentionally incentivizing pathological behavior. In network routing problems, if network traffic is composed of many individual agents, it is known that self-interested behavior among the agents can lead to suboptimal network congestion. We study situations in which a system planner charges monetary tolls for the use of network links in an effort to incentivize efficient routing choices by the users, but in which the users' sensitivity to tolls is heterogeneous and unknown. We seek locally-computed tolls that are guaranteed not to incentivize worse network routing than in the un-influenced case. Our main result is to show that if networks are sufficiently complex and populations sufficiently diverse, perverse incentives cannot be systematically avoided: any taxation mechanism that improves outcomes on one network must necessarily degrade them on another. Nonetheless, for the simple class of parallel networks, non-perverse taxes do exist; we fully characterize all such taxation mechanisms, showing that they are a generalized version of traditional marginal-cost tolls.