Congestion Pricing: A Mechanism Design Approach

We study traffic congestion as a mechanism design problem by analyzing the allocation of drivers to a congestible road. Drivers have private information about their value of time (VOT). With a finite number of drivers, the efficient allocation depends on drivers' VOTs and is ex-ante unknown. Thus, setting a single Pigouvian price is generally not optimal. Nevertheless, the regulator can implement the efficient allocation with a Vickrey-Clarke-Groves payment rule: drivers pay for road access but also for faster travel. Our mechanism sets this price correctly without prior knowledge of the distribution of drivers' VOT