The Welfare Effect of Road Congestion Pricing : Experimental Evidence and Equilibrium Implications ∗

The textbook policy response to traffic externalities is congestion pricing. However, quantifying the welfare consequences of pricing policies requires detailed knowledge of commuter preferences and of the road technology. I study the peak-hour traffic congestion equilibrium using rich travel behavior data and a field experiment grounded in theory. Using a newly developed smartphone app, I collected a panel data set with precise GPS coordinates for over 100,000 commuter trips in Bangalore, India. To identify the key preference parameters in my model – the value of time spent driving and schedule flexibility – I designed and implemented a randomized experiment with two realistic congestion charge policies. The policies penalize peak-hour departure times and driving through a small charged area, respectively. Structural estimates based on the experiment show that commuters exhibit moderate schedule flexibility and high value of time. In a separate analysis of the road technology, I find a moderate and linear effect of traffic volume on travel time. I combine the preference parameters and road technology using policy simulations of the equilibrium optimal congestion charge, which reveal notable travel time benefits, yet negligible welfare gains. Intuitively, the social value of the travel time saved by removing commuters from the peak-hour is not significantly larger than the costs to those commuters of traveling at different, inconvenient times. ∗I am deeply grateful to my advisers Ben Olken, Esther Duflo, Frank Schilbach, and Edward Glaeser for their advice and generous support throughout this project. I especially thank Nikhil Agarwal, Vikas Dimble, Matt Lowe and Yuhei Miyauchi for useful conversations. I thank Alex Bartik, Moshe Ben-Akiva, Benjamin Faber, John Firth, Chishio Furukawa, Nick Hagerty, Rachel Glennerster, Tetsuya Kaji, Jing Li, Rachael Meager, Scott Nelson, Will Rafey, Otis Reid, Mahvish Shaukat, Dan Waldinger, and participants at the J-PAL Bangalore brown bag lunch for many helpful suggestions. Anupriya Khemka, Keerthana Jagadeesh, and Ashwin MB provided excellent research assistance. I also thank Mohannad Abunassar, Maryam Archie, Priya Chetri, Sasha Fleischman, Mahima Gupta, Aditi Sinha, Mamta Jat, Kristina Kelhofer, Michelle Nenciu, Sebastian Quinones, Sarvottam Salvi, Meghna Singh, Sahana Subramanyam, Tammy Tseng, Thuy Duong Vuong, Lantian Xiang, and Massieh Zare, who contributed valuable research assistance at various stages of the project. I gratefully acknowledge design and technical support for the smartphone app “Bangalore Traffic Research” from Adrian Drewett and Dharmendra Singh from Gridlocate Ltd. Funding for this project was generously provided by the Weiss Family Fund for Research in Development Economics, the IGC Cities Fund, the J-PAL Pilot Fund, and the J-PAL Urban Services Initiative Pilot Fund. This project has human subjects approval from MIT COUHES (protocol 1511312369A002) and IFMR (IRB00007107) and was registered in the AEA RCT Registry (AEARCTR-0002083). †MIT Department of Economics. Email: gek@mit.edu. Website: http://economics.mit.edu/grad/gek