Why License Plate Rationing Does Not Work and How to Fix It?

Marco Nie
Northwestern University

License plate rationing (LPR) has become an increasingly popular travel demand management strategy in developing countries. In this talk I will argue that such a trend is concerning because of the inherent flaws of the policy. Using a conceptual mathematical model that explicitly considers mode choice and user heterogeneity, I will first show that that LPR is not a first-best policy. In fact, there is no guarantee that LPR can even be a second-best policy: it may never improve the system cost, regardless of its configuration. More important, when it does improve the system cost, LPR makes it impossible to maximize the system efficiency by using other complementary policies. To correct the shortcomings of LPR, I propose and analyze three new travel demand management policies. The first policy couples LPR with a new vehicle quota scheme that directly controls auto ownership. The other two policies turn the driving permit into a tradable commodity. They differ, however, in that one policy ties the permit to the license plate and yet the other bestows all travelers with equal driving permits. All new policies may be viewed as “derivatives” of LPR because they share some key features: simplicity (i.e., few and straightforward control targets) and revenue neutrality. The analysis suggests that giving tradable permits to all travelers is far more effective and efficient than other alternatives.

Presentation (PDF File)

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