@article{Small:10550,
      recid = {10550},
      author = {Small, Kenneth A. and Yan, Jia},
      title = {The Value of "Value Pricing" of Roads: Second-Best Pricing  and Product Differentiation},
      address = {2000},
      number = {1318-2016-103300},
      series = {Discussion Paper 00-08},
      pages = {26},
      year = {2000},
      abstract = {Some road-pricing demonstrations use an approach call ed  "value pricing", in which travelers can choose between a  free but congested roadway and a priced roadway. Recent  research has uncovered a potentially serious problem for  such demonstrations: in certain models, second-best tolls  are far lower than those typically charged, and the welfare  gains from profit maximization are small or even negative.  That research, however, assumes that all travelers are  identical, and it therefore neglects the benefits of  product differentiation, by which people with different  values of time can choose a suitable cost / quality  combination. Using a model with two user groups, we find  that accounting for heterogeneity in value of time is  important in evaluating constrained policies, and improves  the relative performance of policies that offer  differential prices. Nevertheless, for most of the  reasonable range of heterogeneity, second-best pricing  produces far fewer benefits than priciing both roadways  optimally, and profit-maximizing tolls are so high that  overall welfare is reduced from the no-toll baseline.},
      url = {http://ageconsearch.umn.edu/record/10550},
      doi = {https://doi.org/10.22004/ag.econ.10550},
}