Parking policies and road pricing

There are two main sources of inefficiency in urban transport markets. First, transport prices fail to reflect the external costs of travel, notably peak-period external congestion costs. Secondly, a large percentage of drivers park for free, particularly at the workplace. Economic theory suggests, in the absence of other market distortions, that efficiency can be restored with a perfectly differentiated external cost charge in conjunction with resource-cost pricing of all parking spots. In practice, urban transport authorities can try various combinations of imperfect road-pricing systems and imperfect parking charges. One example might be the use of a single cordon charge to enter a city, together with a tax on workplace parking. In this paper, we use a numerical simulation model of an urban transport market to examine the efficiency gains from various parking policies with and without a simple cordon system. As would be expected, we show that pricing of parking and road use need to be simultaneously determined. As the level of the parking fee becomes more efficient, or as the number of free parkers is reduced, so the level of optimally determined cordon charge falls. Additionally, by introducing a cordon charge, the level of the optimally determined parking fee falls. The model results show that the second-best pricing of all parking spaces produces higher welfare gains than the use of a single-ring cordon scheme, though marginally lower than the combination of a cordon charge with resource-cost pricing of parking spots.