Optimal Environmental Road Pricing and Integrated Daily Commuting Patterns

Road pricing can improve air quality by reducing and spreading traffic flows. Nevertheless, air quality does not depend only on traffic flows, but also on pollution dispersion. In this paper we investigate the effects of the temporal variation in pollution dispersion on optimal road pricing, and show that time-varying road pricing is needed to make drivers internalize the social costs of both time-varying congestion and time- varying pollution. To this end, we develop an ecological economics model that takes into account the e¤ects of road pricing on integrated daily commuting patterns. We characterize the optimal road pricing when pollution dispersion varies over the day and analyze its effects on traffic flows, arrival times, and the number of commuters by car. JEL: Q53, Q58, R41, R48