Optimal road capacity and the ‘uneconomic’ region of production

This paper formulates a model of optimal road capacity in the presence of unpriced congestion. The model includes the assumption that the peak traffic volume may fall below the capacity of the highway because of a large level of traffic density. The analysis in the paper shows that the optimal equilibrium outcome falls in this range if the cost of road capacity is relatively high and/or if travel demand is price elastic. A numerical example is included to illustrate the use of the model.