# Presentation: 057607

## Modeling Pricing in the Planning Process

- Ram M. Pendyala
- Department of Civil and Environmental Engineering
- University of South Florida, Tampa
*U.S. Department of Transportation*
*Alexandria, VA; November 14-15, 2005*

*Expert Forum on Road Pricing and *
*Travel Demand Modeling*

## Introduction and Motivation
Role of Travel Demand Modeling
Variety of Pricing Mechanisms
Road Pricing Projects: U.S. and Abroad
Pricing and Network Dynamics
Experiences with Toll Road Forecasting
Sources of Errors in Forecasts
Four/Five-Step Travel Demand Models

- Role of Travel Demand Modeling
- Variety of Pricing Mechanisms
- Road Pricing Projects: U.S. and Abroad
- Pricing and Network Dynamics
- Experiences with Toll Road Forecasting
- Sources of Errors in Forecasts
- Four/Five-Step Travel Demand Models

- Outline

## Key Behavioral Processes Underlying Response to Pricing Policies
Advances in Travel Demand Modeling Methods and Paradigms
Conclusions and Future Directions

- Advances in Travel Demand Modeling Methods and Paradigms
- Conclusions and Future Directions

- Outline (continued)

## Pricing and innovative toll strategies
Drivers pay marginal cost of travel – congestion and externalities
Travel demand management strategy
Reduce auto travel – mode & destination shifts
Suppress auto travel – eliminate or combine trips
Reduce peak period congestion – temporal shifts
Revenue generation
Invest in transport infrastructure improvements
Pay off debt
Desire for high volumes of paying users
Conflicting objectives?

- Drivers pay marginal cost of travel – congestion and externalities
- Travel demand management strategy
- Reduce auto travel – mode & destination shifts
- Suppress auto travel – eliminate or combine trips
- Reduce peak period congestion – temporal shifts
- Revenue generation
- Invest in transport infrastructure improvements
- Pay off debt
- Desire for high volumes of paying users
- Conflicting objectives?

- Introduction and Motivation

## Sketch planning techniques
Elasticity methods
Peer city comparisons
Similar facility comparisons
Stated preference research
Estimates derived from stated preference data
Travel demand modeling systems
Variations of four-step travel demand modeling methods 
Forecast patronage, traffic impacts, and revenue stream into future

- Elasticity methods
- Peer city comparisons
- Similar facility comparisons
- Stated preference research
- Estimates derived from stated preference data
- Travel demand modeling systems
- Variations of four-step travel demand modeling methods
*Forecast patronage, traffic impacts, and revenue stream into future*

- Planning Methods for Pricing Strategies

## Traffic and travel demand impacts
VMT, VHT, travel time, delay, traffic volumes
Accessibility impacts
Revenue generation perspective
Patronage or volume of demand by time of day
Market penetration by payment type/technology
Short- and long-run demand elasticities
Social equity and environmental justice
Mobility, accessibility, and economic impacts by market segment (income, car ownership, gender, age, etc.) 

- VMT, VHT, travel time, delay, traffic volumes
- Accessibility impacts
- Revenue generation perspective
- Patronage or volume of demand by time of day
- Market penetration by payment type/technology
- Short- and long-run demand elasticities
- Social equity and environmental justice
- Mobility, accessibility, and economic impacts by market segment (income, car ownership, gender, age, etc.)

- Pricing-Strategy Related Impacts

## Public transport pricing systems
Parking pricing
Standard (flat) tolls
Shadow tolls
Area-Based/Distance-Based Congestion Charging
Variable/Dynamic/Value Pricing/Tolls: Facility-Based
HOT Lanes/FAIR Lanes
Credit-based congestion pricing

- Parking pricing
- Standard (flat) tolls
- Shadow tolls
- Area-Based/Distance-Based Congestion Charging
- Variable/Dynamic/Value Pricing/Tolls: Facility-Based
- HOT Lanes/FAIR Lanes
- Credit-based congestion pricing

- Variety of Pricing Mechanisms

## FHWA’s five types of value-pricing projects
A. Pricing on existing roads
B. Pricing on new lanes
C. Pricing on toll roads
D. Pricing of parking and vehicle use
E. Region-wide studies/initiatives
Several operational and others under study
Considerable international experience
Singapore: 25+ years of experience
Central London: 2-3 years of experience

- A. Pricing on existing roads
- B. Pricing on new lanes
- C. Pricing on toll roads
- D. Pricing of parking and vehicle use
- E. Region-wide studies/initiatives
- Several operational and others under study
- Considerable international experience
- Singapore: 25+ years of experience
- Central London: 2-3 years of experience

- Road Pricing Projects: U.S. and Abroad

## Optimizing traffic networks using pricing mechanisms
Minimal-revenue congestion pricing to induce system optimal performance
Dynamic traffic network simulation
Variety of electronic toll/pricing technologies
Mix of users changes over time 
Modeling impacts of variable pricing requires explicit recognition of network dynamics

- Minimal-revenue congestion pricing to induce system optimal performance
- Dynamic traffic network simulation
- Variety of electronic toll/pricing technologies
- Mix of users changes over time
- Modeling impacts of variable pricing requires explicit recognition of network dynamics

- Pricing and Network Dynamics

## Several projects described in paper
SR 91 express lanes in California
San Diego I-15 congestion pricing project
Lee County (Florida) variable pricing project
Singapore congestion pricing implementation
Central London congestion charging scheme
All projects report various degrees of success
Decrease in traffic congestion, particularly in peak periods
Substantial patronage/usage of toll facilities

- SR 91 express lanes in California
- San Diego I-15 congestion pricing project
- Lee County (Florida) variable pricing project
- Singapore congestion pricing implementation
- Central London congestion charging scheme
- All projects report various degrees of success
- Decrease in traffic congestion, particularly in peak periods
- Substantial patronage/usage of toll facilities

- Pricing Project Experiences

## Toll road forecasts with traditional travel demand model systems
Minor variations to incorporate sensitivity to pricing
Analysis of toll road forecast accuracy
Toll road forecasts overestimated traffic by 20-30%
Review of 87 toll road projects: Average ratio of actual/forecast patronage is 0.76
Suggest presence of significant systematic optimism bias
Previous experience with toll facilities helps  improve accuracy of forecasts

- Minor variations to incorporate sensitivity to pricing
- Analysis of toll road forecast accuracy
- Toll road forecasts overestimated traffic by 20-30%
- Review of 87 toll road projects: Average ratio of actual/forecast patronage is 0.76
- Suggest presence of significant systematic optimism bias
- Previous experience with toll facilities helps  improve accuracy of forecasts

- Toll Road Forecasting Experience

## Errors in socio-economic and land use forecasts that serve as inputs to model system
Errors in input assumptions including model coefficients, costs, rates, value of travel time
Errors in coding networks and node/link attributes by time-of-day
Errors in truck travel forecasts
Errors in estimate of ramp-up period
Errors in behavioral paradigms underlying travel demand forecasts

- Errors in input assumptions including model coefficients, costs, rates, value of travel time
- Errors in coding networks and node/link attributes by time-of-day
- Errors in truck travel forecasts
- Errors in estimate of ramp-up period
***Errors in behavioral paradigms underlying travel demand forecasts***

- Sources of Errors in Forecasts

## In response to pricing...
Trips may be eliminated due to additional cost
New trips may be induced due to improved level-of-service
Traditional models unable to account for impacts of accessibility on trip generation (activity participation)

- Trips may be eliminated due to additional cost
- New trips may be induced due to improved level-of-service
- Traditional models unable to account for impacts of accessibility on trip generation (activity participation)

- Induced/Suppressed Travel

## In response to pricing...
Trips may be combined/linked into chains/tours
Additional cost may induce desire for efficiency
Shifts in trip timing may lead to trip chain formation
Need to recognize inter-dependencies among trips in a chain (e.g., mode, destination) 

- Trips may be combined/linked into chains/tours
- Additional cost may induce desire for efficiency
- Shifts in trip timing may lead to trip chain formation
- Need to recognize inter-dependencies among trips in a chain (e.g., mode, destination)

- Trip Chaining and Tour Formation

## Behavioral response to pricing strategies influenced by...
Spatio-temporal flexibility and constraints
Defining time-space prisms 
Time allocation and time use behavior (activity episode duration)
Scheduling/timing of activities and trips
Time of day modeling along the continuous time axis

- Spatio-temporal flexibility and constraints
- Defining time-space prisms
- Time allocation and time use behavior (activity episode duration)
- Scheduling/timing of activities and trips
- Time of day modeling along the continuous time axis

- Time-Space Geography

## Traveler response to pricing strategies dependent on host of interactions
Interactions among household members – activity allocation and joint activity engagement behavior
Activity scheduling and re-scheduling behavior
Inter-dependencies among activities and trips in a complete activity-travel pattern
History dependency and inter-temporal relationships
In-home – out-of-home activity substitution and complementarity 

- Interactions among household members – activity allocation and joint activity engagement behavior
- Activity scheduling and re-scheduling behavior
- Inter-dependencies among activities and trips in a complete activity-travel pattern
- History dependency and inter-temporal relationships
- In-home – out-of-home activity substitution and complementarity

- Agent-Based Interactions and Inter-dependencies

## Primary impact on specific trip(s) subjected to pricing strategy
Interactions/inter-dependencies result in host of secondary/tertiary impacts
Complete activity-travel pattern subject to change as trips are... 
rescheduled and chained
shifted in time, mode, destination, route
Impacts on other household members 

- Interactions/inter-dependencies result in host of secondary/tertiary impacts
- Complete activity-travel pattern subject to change as trips are...
- rescheduled and chained
- shifted in time, mode, destination, route
- Impacts on other household members

- Secondary/Tertiary Impacts

## Simulation of complete activity-travel patterns for each individual in population
Modeling at the level of the individual decision-maker
Represent behavioral decision-making processes
Capture differences (taste-variation) across individuals 
Synthesize and evolve population over time
Reflect population dynamics
Ramp-up period represents evolutionary period of learning and adaptation

- Modeling at the level of the individual decision-maker
- Represent behavioral decision-making processes
- Capture differences (taste-variation) across individuals
- Synthesize and evolve population over time
- Reflect population dynamics
- Ramp-up period represents evolutionary period of learning and adaptation

- Microsimulation Approaches

## Pricing policies increasingly variable/ dynamic in nature
Travel times, costs, paths, and speed-flow patterns constantly updated 
Dynamic traffic assignment algorithms to reflect network dynamics
Integrate with activity-based models
Appropriate feedback loops – network impacts on activity patterns

- Travel times, costs, paths, and speed-flow patterns constantly updated
- Dynamic traffic assignment algorithms to reflect network dynamics
- Integrate with activity-based models
- Appropriate feedback loops – network impacts on activity patterns

- Dynamic Traffic Assignment

## Host of medium and longer term choices potentially impacted by pricing policies
Residential and work location choice
Vehicle ownership choice
Business location choice
Changes in property values and land accessibility
Evolution of urban system
Feedback between activity-travel demand model and land use simulation model

- Residential and work location choice
- Vehicle ownership choice
- Business location choice
- Changes in property values and land accessibility
- Evolution of urban system
- Feedback between activity-travel demand model and land use simulation model

- Integrated Urban Systems and Activity-Travel Modeling

## Heterogeneity in population attributes
Attitudes and perceptions towards pricing strategies
Preferences for and values attributed to alternative behavioral responses
Values of travel time savings and travel time reliability
Learning and adaptation strategies
Recent advances in econometric model formulation and estimation
Presence of heterogeneity in value of travel time savings proven 

- Attitudes and perceptions towards pricing strategies
- Preferences for and values attributed to alternative behavioral responses
- Values of travel time savings and travel time reliability
- Learning and adaptation strategies
- Recent advances in econometric model formulation and estimation
- Presence of heterogeneity in value of travel time savings proven

- Heterogeneity in Population Attributes

## Attitudes and perceptions shape behavior (and vice-versa)
Nature and magnitude of response to pricing policy
Adaptation strategies adopted
New activity-travel pattern considered “acceptable” or “satisfactory” or “optimal”
Adoption of electronic toll collection technologies
Habitual vs. occasional use of tolled facility 
Help inform model framework, behavioral paradigm, and model specification

- Nature and magnitude of response to pricing policy
- Adaptation strategies adopted
- New activity-travel pattern considered “acceptable” or “satisfactory” or “optimal”
- Adoption of electronic toll collection technologies
- Habitual vs. occasional use of tolled facility
- Help inform model framework, behavioral paradigm, and model specification

- Role of Attitudes and Perceptions

## Tour-based and activity-based microsimulation model systems
Advanced econometric model estimation methods
Reflect behavioral decision-making processes
Cause-and-effect relationships
Integrated modeling of land use – activity/travel demand – traffic network continuum with feedback
Long-term to short-term choices 
Not necessarily unique to pricing policies – many other emerging behavioral, policy, technology, and environmental issues

- Advanced econometric model estimation methods
- Reflect behavioral decision-making processes
- Cause-and-effect relationships
- Integrated modeling of land use – activity/travel demand – traffic network continuum with feedback
- Long-term to short-term choices
- Not necessarily unique to pricing policies – many other emerging behavioral, policy, technology, and environmental issues

- Towards a New Generation of Modeling Approaches

## Unique nature of pricing schemes that amplify issues with models
Direct cost/monetary implications
Direct travel time/reliability implications
Direct infrastructure finance implications
Absence of incorporation of monetary constraints (expenditures vis-à-vis income)
Some decrease in VMT growth, but generally little (short-term) impact of fuel price rise  

- Direct cost/monetary implications
- Direct travel time/reliability implications
- Direct infrastructure finance implications
- Absence of incorporation of monetary constraints (expenditures vis-à-vis income)
- Some decrease in VMT growth, but generally little (short-term) impact of fuel price rise

- Pricing Considerations

## What should toll reflect/accomplish?
Value of travel time savings
Value of travel time reliability
Facility construction/maintenance costs
Congestion/externality costs (full cost pricing)
Network-wide ripple effects
Shifts to facility due to improved LOS
Shifts away from facility due to added cost
Shifts to improved toll-free facilities  

- Value of travel time savings
- Value of travel time reliability
- Facility construction/maintenance costs
- Congestion/externality costs (full cost pricing)
- Network-wide ripple effects
- Shifts to facility due to improved LOS
- Shifts away from facility due to added cost
- Shifts to improved toll-free facilities

- Pricing Considerations (continued)

## Modify attribute of least impact first?
Route shift
Temporal shift
Trip chaining shifts
Destination shifts
Mode shifts
Activity (re)allocation
Activity participation (elimination/addition)
Auto ownership
Workplace/residential location
Implications for behavioral modeling   

- Route shift
- Temporal shift
- Trip chaining shifts
- Destination shifts
- Mode shifts
- Activity (re)allocation
- Activity participation (elimination/addition)
- Auto ownership
- Workplace/residential location
- Implications for behavioral modeling

- Hierarchy of Behavioral Response?

## Widespread interest in implementation of innovative pricing schemes/technology systems
Toll road forecasts coming under intense scrutiny
Determine contribution of various sources of error
Input data/assumptions/variable forecasts
Model specifications/parameters/variables
Behavioral paradigm/framework
Heterogeneity in traveler perceptions and values

- Toll road forecasts coming under intense scrutiny
- Determine contribution of various sources of error
- Input data/assumptions/variable forecasts
- Model specifications/parameters/variables
- Behavioral paradigm/framework
- Heterogeneity in traveler perceptions and values

- Key Opportunities

## Several real-world projects offering data on observed behavior
Conduct longitudinal surveys of behavior in conjunction with ongoing projects
Test and validate advanced travel demand modeling methods
Controlled studies involving comparisons of forecasts offered by different modeling methods
Special experiments to understand behavioral adaptation, heterogeneity, and attitudes/perceptions

- Conduct longitudinal surveys of behavior in conjunction with ongoing projects
- Test and validate advanced travel demand modeling methods
- Controlled studies involving comparisons of forecasts offered by different modeling methods
- Special experiments to understand behavioral adaptation, heterogeneity, and attitudes/perceptions

- Key Opportunities