Pricing transport networks with fixed residential location

We consider a congestible static traffic network which is used by different households and analyse the conditions for optimal congestion taxes on network links, when not all links in the network can be taxed (partial network pricing). This is done under two assumptions about the toll revenues. First, lump sum transfers are assumed to be available. It is shown that social welfare maximisation leads to unequal treatment of equal households, because of differences in transport costs, and that constraints on network pricing imply complex deviations from marginal social cost pricing, because of network interactions. The second assumption is that the congestion tax revenue is redistributed to households according to predetermined shares. In that case, the optimal link taxes consist of a Pigouvian component, a Ramsey-Mirrlees component and a network interaction component. The taxes will deviate from marginal external congestion costs, even in the absence of network pricing constraints. This result is qualitatively different from the partial equilibrium analysis. Stylised examples of two networks are used to illustrate (a) the impact of unequal treatment of equals and of tax redistribution rules on optimal link taxes and on their effectiveness in terms of social welfare, and (b) the effect of network pricing constraints. The results suggest that (1) the effectiveness of congestion taxes is strongly reduced when not all links in the network can be taxed, (2) assignment inefficiencies are of less importance than excess demand levels when no taxes are present, and (3) that optimal parking charges may outperform partial pricing schemes when the assignment inefficiencies are small.