Estimating welfare effects of congestion charges in real world settings

According to the standard textbook analysis, drivers as a group will be worse off with congestion charging if not compensated by revenues. This result is confirmed by an analysis of the Stockholm congestion charging scheme using a static model with homogeneous users. However, both this static model and the standard textbook analysis omit three important factors: taste heterogeneity, effects of charges on the larger network arising from less blocking back of upstream links and the possibility for drivers to reschedule. Taking account of these factors, using a dynamic scheduling model with heterogeneous users estimated and calibrated for Stockholm, we find that drivers as a group benefit from the charging scheme in Stockholm without recycling of revenues. This paper further investigates the importance of the three mentioned factors. We find that all three factors add significantly to the benefit of the charges and that the most important is heterogeneity in the value of travel time savings. This paper also provides an update on the consumer benefits of the Stockholm charges.