Are Prices in Charge of Congestion? An Empirical Study of Increased Congestion Charge and Traffic in Stockholm

Abstract: Economic theory often suggests congestion pricing to smooth the demand for traffic from periods of high demand to periods with lower demand. However, the real-world implementation of con- gestion charges remains limited. This study investigates the relationship between time-varying congestion charges and traffic volumes. By applying a difference-in-difference (DiD) method on hourly level traffic data from Stockholm, we examine the effects of the increased congestion charge in 2016 and 2020 on traffic volumes. The results suggest that increased congestion charge prices have resulted in less traffic during peak hours. However, the increased congestion price has also increased traffic just before and just after the hours covered by the congestion charge. In addition it has also increased traffic for hours with a low congestion charge. Thus, the total effect of the increased prices is twofold since it results in both decreased traffic volumes and substitution to cheaper hours. Using the attained DiD estimates to calculate elasticities, we find modest price elasticities of demand for traffic. Applying a peak-load pricing perspective and the Ramsey model on the results suggests there is room for increased prices where the responsiveness of traffic has been low.