Optimal Cordon Pricing and Road Investment Under Optimal Building Size Regulation

This paper explores the simultaneous imposition of cordon pricing and population density regulations in a closed monocentric city with traffic congestion. It explores also how to optimize road investment at all locations. We show the optimal level of pricing, the optimal location of the cordon line and the optimal width of road at all locations in a city. Results show that 1) optimal toll can be represented by the difference in the marginal deadweight loss per household in the floor area market across the cordon line, 2) optimal cordon location should be determined so that the rent difference across the cordon line is balanced with the difference of the deadweight loss in the floor area market across the cordon line, 3) in both the inside zone and the outside zone of the cordon line, minimum (resp. maximum) FAR regulation are required at locations close to the CBD side (resp. the urban boundary side), and 4) how the benefit of widening a road inside and outside the cordon line can be measured