Congestion Pricing Requires a Careful Balance

Congestion pricing is an economic tool for a difficult, complicated problem, and must be calculated carefully to avoid unintended consequences.

1 minute read

August 1, 2016, 12:00 PM PDT

By James Brasuell @CasualBrasuell


Commuter Traffic

stockfotoart / Shutterstock

Adam Milsap shares news of a new paper by Jeffrey Brinkman that serves as a reminder of the world's complications, especially with regard to congestion and agglomeration economies.

For those unfamiliar with the latter term, Milsap defines agglomeration economies as "the benefits that occur when firms and workers are in proximity to one another." Importantly, agglomeration economies are a behavior commonly found in firm clusters and cities.

While taxing activities that generate negative externalities and subsidizing activities that generate positive externalities is economically sound, calculating the appropriate tax or subsidy is often difficult in practice. The key problem, according to Milsap: "Since congestion is a result of the high population density that is also associated with agglomeration economies, there is tradeoff between the two."

So Jeffrey Brinkman's paper, published in the Journal of Urban Economics, argues:

…if city officials ignore the positive effect of agglomeration economies on productivity when calculating their congestion taxes they may set the tax too high. Overall welfare may improve even if the tax is too high (it depends on the size of the DWL when no tax is implemented) but society will not be as well off as it would be if the positive agglomeration effects were taken into account.

Thursday, July 21, 2016 in Neighborhood Effects

portrait of professional woman

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

Mary G., Urban Planner

Get top-rated, practical training

Logo for Planetizen Federal Action Tracker with black and white image of U.S. Capitol with water ripple overlay.

Planetizen Federal Action Tracker

A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

April 30, 2025 - Diana Ionescu

Close-up on Canadian flag with Canada Parliament building blurred in background.

Canada vs. Kamala: Whose Liberal Housing Platform Comes Out on Top?

As Canada votes for a new Prime Minister, what can America learn from the leading liberal candidate of its neighbor to the north?

April 28, 2025 - Benjamin Schneider

Hot air balloons rise over Downtown Boise with the State Capitol building visible amidst the high rises.

The Five Most-Changed American Cities

A ranking of population change, home values, and jobs highlights the nation’s most dynamic and most stagnant regions.

April 23, 2025 - GoodMigrations

People biking along beach path with moored ship in San Diego, California.

San Diego Adopts First Mobility Master Plan

The plan provides a comprehensive framework for making San Diego’s transportation network more multimodal, accessible, and sustainable.

May 2 - SD News

Sleeping in Public

Housing, Supportive Service Providers Brace for Federal Cuts

Organizations that provide housing assistance are tightening their purse strings and making plans for maintaining operations if federal funding dries up.

May 2 - KSL

Conductor walks down platform next to Amtrak train at station in San Jose, California.

Op-Ed: Why an Effective Passenger Rail Network Needs Government Involvement

An outdated rail network that privileges freight won’t be fixed by privatizing Amtrak.

May 2 - Streetsblog USA

Urban Design for Planners 1: Software Tools

This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.

Planning for Universal Design

Learn the tools for implementing Universal Design in planning regulations.

Senior Manager Operations, Urban Planning

New York City School Construction Authority

Building Inspector

Village of Glen Ellyn

Manager of Model Development

Central Transportation Planning Staff/Boston Region MPO