Road network toll pricing and social welfare

The construction and maintenance costs of a road network can be financed in part through public funding and in part by imposing tolls on some of its roads. This paper proposes a method for calculating road tolls which determines a partitioning of the costs burden between motorists and public financing such that social welfare is optimised. The method involves solution of an optimisation problem with an equilibrium constraint, for which an algorithm is proposed. An application to a real case is presented, and the results show that the optimum tolls are independent of the fixed costs of the road sections on which they are imposed, whereas they depend heavily on the marginal costs of public funds and the willingness of motorists to pay. If both these parameters are high, the optimal toll revenue collected on a road may result to be higher than actual road costs, so that the consequent surplus toll revenues can be made available to uses other than the road on which the tolls are collected.