Price versus quantity measures to deal with pollution and congestion in urban areas: A political economy approach

Abstract

Pollution and congestion in urban areas are serious externalities that can be mitigated through the adoption of either price- or quantity-based mechanisms. While price restrictions are occasionally applied, quantity constraints based on car vintage are becoming increasingly popular. Our model provides a comprehensive analysis that explains this prevalence of quantity over price schemes. We also elucidate some other stylized facts observed in urban areas applying traffic restrictions, such as the implementation of hybrid price-and-quantity systems, the use of trial periods, the commitment to invest in public transit to enhance the acceptability of urban tolls, and the concentration of quantity restrictions in high-income cities.