Traffic jams and the congestion toll

The theory of congestion tolls, in particular, the traffic jam, is developed. A dynamic model of traffic flow is presented that describes the formation and development of the traffic jam based on the theory of kinematic waves. The paper demonstrates the dynamic externality present when traffic is jammed. Furthermore, some results are obtained that differ from those based on the conventional approach: (a) the cost curve for travel on a long road does not include the backward-bending section that appears in the conventional approach; (b) traffic jams are allowed for during optimal use of road.