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Economics

Pearl Li

2023–24 Dissertation Fellowship

Dynamically priced highway toll lanes have the potential to reduce traffic congestion in a way that benefits all drivers. While paying drivers enjoy substantial time savings, even drivers who infrequently take the priced lanes can derive insurance value from having the option (but not the obligation) to do so. In this paper, we evaluate the welfare and distributional effects of dynamically priced highway toll lanes, with an emphasis on the insurance value channel. We develop a two-stage model of drivers' departure time and route choices and estimate the model using data from Interstate 405 in Washington State. We decompose welfare changes among driver groups, quantify the insurance value of dynamically priced toll lanes, and evaluate counterfactual pricing policies. The choice between paying with time and paying with money is not unique to transportation; our results suggest that decision-makers may derive insurance value from the paid option in many more general settings.