WP 2020-17 Should I Stay or Should I Go? Equilibrium Selection in a Transportation Network

Posted On October 15, 2020
Categories Working Papers, WP 2020

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AUTHORS: Enrica Carbone, Vinayak V. Dixit, and E. Elisabet Rutström

ABSTRACT: When imposing congestion pricing in a transportation network, especially around downtown commercial centers, there is a concern that commercial activities will have to consider relocating. Such relocations can be both risky and costly. We design an experimental game where merchants make location choices before drivers, who are the customers, make their route choices. We implement two treatments that differ in the history of experienced with congestion pricing. In each treatment players interact during an initial 10 periods with different dominant strategy equilibria caused by different congestion charges. After this initial play they interact in the multiple equilibria condition, with intermediate congestion charges, where merchants are indifferent between the possible outcomes. Payoffs are non-linear and not completely transparent, making it less than obvious that the efficient equilibrium will be selected. Our hypothesis is that selection instead is determined by simple decision rules that are influenced by history. We find that players react to the direction of change in the congestion charge: increasing the toll immediately moves traffic away from the tolled route and decreasing the toll immediately moves traffic towards the tolled route. Our findings have policy consequences since even if such route choice changes are temporary they can imply large costs to commercial activities.