Managing Congestion and Infection Externalities in a Road and Rail Network: Pricing versus Permits

Abstract

Peak-hour crowding of mass transit not only leads to uncomfortable passenger experiences but may also give rise to severe health risks. This paper analyzes the allocative efficiency of prices and permits before and after COVID-19 based on a crowding road and rail network where the two modes are imperfect substitutes, and mainly focuses on comparative results for uncertainty on social (outside the train system) and private (in the train system) infection cost parameters. By considering the uncertainty during COVID-19, we find that uncertainty of the private infection cost parameter will change the relative efficiency and welfare effect of these two instruments, but not uncertainty on social infection costs. Moreover, the numerical results indicate that pricing regulation performs better than the tradable permit scheme when private infection cost is uncertain. The results provide theoretical support for policymakers to choose the optimal instruments to internalize the multiple external costs when uncertainties exist.