Evidence of People?s Response to Complex Pricing Structures: Implications for Road Pricing



Evidence of People?s Response to Complex Pricing Structures: Implications for Road Pricing

Authors

P Bonsall, J Shires, B Matthews, ITS, University of Leeds, UK; J Maule, The Business School, University of Leeds, UK

Description

Abstract

Road pricing seeks to internalise the external costs of road use (wear and tear on roads, congestion, pollution, noise, accident costs etc) but achievement of an ?efficient? or ?first best? pricing solution requires real-time calculation and communication of prices reflecting factors such as vehicle type, capacity, demand, and atmospheric conditions - each of which would affect the extent of externalities. Although the real-time calculation and communication of first-best prices may soon be technically feasible, it would not have the desired effect on behaviour if it was too complex for road users to understand or respond to. The ideal approach is likely to be something of a compromise between a highly complex, and very time-variant, pricing structure, which is theoretically ideal, and a much simpler structure which people could understand and respond to. It is this trade-off between complexity and practicality which we focus on in this paper.

The findings and conclusions presented in this paper originate in a research project conducted in 2004 for the Department for Transport as part of their ongoing Road Pricing Feasibility Study (RPFS). The RPFS sought to investigate practical options for the design and implementation of a new, nationwide, system for charging for road use. Our research complemented other projects addressing issues such as the public acceptability of road pricing. It sought evidence on how people respond to complex pricing structures, and explored the implications that this might have for the future design of road pricing structures. The key elements of the research were:
? a review of existing studies of road pricing schemes to assess what information and evidence already existed on the key issues;
? identification of what could be learned about pricing structures from other transport modes and other industries and in particular what issues and conclusions might be transferable; and
? improvement of the general understanding of the relationship between information and peoples? ability to respond to it.

The study included a comprehensive search of published literature, leading to the review of 76 papers/reports, and in-depth interviews with 21 key individuals with experience of pricing in both transport and non-transport industries. The literature review covered four main areas: studies with the utility and transport industry, studies of road pricing, work on traveller behaviour and work on human judgement and decision making. The interviews covered several transport sectors (road, air & rail), telecommunications, consumer groups, government offices and academic institutions. Our investigations sought evidence from case studies, and from the relevant literature, on peoples? ability to cope with complexity/uncertainty and at the way in which this ability depends on familiarity and education. We examined the coping strategies, including the use of heuristics, adopted when full evaluation of options is not possible or appears unjustified. We looked for general evidence on the likely behavioural responses to complex/uncertain charges and at more specific issues such as whether complex charges might be more acceptable in the public or private sector.

Any conclusions are of course subject to the caveat that people differ according to their abilities to cope with complex information and in their responses to it. Nevertheless we were able to conclude that, although most people dislike uncertainty and complexity, and will seek to avoid it where possible, they are generally quite capable of appreciating the implications of a quite complex or variable price structure provided that it has a clear logic behind it. The implications of our findings for road pricing are presented in this paper and grouped under four headings:
1) Implications for the System Specification ? It is not realistic to expect drivers to be able or willing, to calculate the precise charges associated with different journeys. The best that can be hoped for is that they understand the structure of the charges. This in turn will depend upon the logic that underlies it, e.g. the structure should provide for higher charges on the busiest roads and the busiest time. Most people estimate distance via time and so charges should reflect this.
2) Implications for the Communication of Price Signals ? Information about the price structure may need to be communicated in a variety of way (e.g. in both summary and detailed formats) in order to meet the needs and abilities of different types of driver. In-car meters and/or post-trip logs identifying the incidence of charges could help people to monitor charges and so learn to predict them. Map based information about charges might be useful for some people, as would colour coding. It would, however, be inequitable to rely exclusively on any one form of display or communication.
3) Implications for the Implementation Strategy ? Significant effort would be required, prior to launch, to explain the reasons for the scheme and the logic of the charging structure. The system should be trialled and the introduction of complexity phased.
4) Expectations of Response ? If road pricing induces strong task engagement people will make an effort to predict accurately; if not, they will resort to simple rules and heuristics (e.g. ?try to avoid town centres and peak traffic?) or will make no effort to adjust their behaviour in the light the charges.

Publisher

Association for European Transport