1 s2.0 S019126152100045X Main

Transportation Research Part B 147 (2021) 92–115
Contents lists available at ScienceDirect
Transportation Research Part B

journal homepage: www.elsevier.com/locate/trb
Road tolls, diverted traffic and local traffic calming measures:

Who should be in charge?
Bruno De Borger a, Stef Proost b,∗
a
Department of Economics, University of Antwerp, Belgium
b
Stef Proost, Department of Economics, FEB, KULeuven, Belgium
a r t i c l e i n f o a b s t r a c t
Article history: Secondary roads often suffer from diverted traffic trying to avoid congestion on major mo-
Received 21 September 2020 torways. In this paper we study the traffic problems of a small town that is located par-
Revised 12 March 2021
allel to a congested motorway and suffers from such diverted traffic (high local accident
Accepted 14 March 2021
risks, local congestion and other nuisances). We assume that the motorway and the sec-
Available online 2 April 2021
ondary road through the local town are under the jurisdiction of a different authority. A
JEL-codes: local government controls local accident risks and congestion using non-price measures
D62 such as speed bumps, traffic lights and explicit access restrictions for through traffic. A
H21 ‘federal’ government can control traffic levels on the motorway using tolls. We show the
H23 following results. First, competition between the federal and local authority leads to a Nash
H77 equilibrium where the toll is too high and there is too much traffic calming compared to
R41 the second-best social optimum. Second, if the local government uses traffic calming mea-
sures, imposing a federal toll on the main road is welfare-reducing, unless congestion on
Keywords:
Traffic access restrictions the main road is severe and accident risks and other traffic nuisances in the small town
Traffic calming are unimportant. Third, traffic diverted from the main road to the local community gives
Road tolls the latter strong incentives to close the local road for through traffic, even when it is so-
Local traffic externalities cially undesirable to do so. Fourth, if the access restriction only applies to through traffic
Competition between governments by trucks, the conflict between federal and local authorities disappears: both will agree on
restricting truck access. A numerical application using a two-link network between Leuven
and Brussels (the highway and an alternative road passing through local communities) il-
lustrates the theoretical results.
© 2021 Elsevier Ltd. All rights reserved.
1. Introduction
Secondary roads often suffer from diverted traffic trying to avoid congestion on main roads. This paper studies a proto-
type example that is quite common in many European countries. We consider a small town or municipality that is located
parallel to a motorway or other major road. The municipality faces several types of peak-period traffic. This includes local
commuters driving to work, traffic for local deliveries, shopping, local employment, schools, etc. However, there is also di-
verted traffic; this is traffic that avoids congestion on the main road by taking a detour through the municipality. Diverted
traffic increases congestion in the municipality, and it generates extra accident risks (mainly for pedestrians and bikers), pol-
lution, noise and a number of other inconveniences for the local population. For example, it is well documented that high
∗
Corresponding author.
E-mail addresses: bruno.deborger@uantwerpen.be (B. De Borger), stef.proost@kuleuven.be (S. Proost).
https://doi.org/10.1016/j.trb.2021.03.004
0191-2615/© 2021 Elsevier Ltd. All rights reserved.
B. De Borger and S. Proost Transportation Research Part B 147 (2021) 92–115
traffic flows increase pedestrian accident risks and fatalities (Rosén and Sanders (2009)). Moreover, the pollution associated
with nearby traffic leads to extra health risks (Currie and Walker (2011), Knittel, Miller and Sanders (2016)) .1 Unsurpris-
ingly, there is convincing evidence that residents negatively value the inconveniences of heavy traffic in their surroundings.
Detailed empirical studies find that the nuisances associated with high traffic volumes negatively and significantly affect
housing prices on nearby streets (see, for example, Ossokina and Verweij (2015), and Poloni (2019)) .2
To protect their residents from excessive traffic nuisances local authorities respond by introducing traffic calming
measures such as speed bumps, traffic lights, speed limits, etc., on local roads (on such measures see, among others,
Elvik (2001) and De Borger and Proost (2013)). Moreover, recent developments in the technology of number plate recog-
nition make it possible for local authorities to restrict road access to selected types of traffic (for example, no truck access,
low emission zones, etc.). In fact, such restricted entry systems have already gained much popularity. The official EU-website
(https://urbanaccessregulations.eu/userhome/map) gives a snapshot of the schemes operational in the bigger cities in Europe.
In Europe (as of July 2017) there were 559 access regulations in urban areas. These included 250 low emission zones, but
the majority (278) were other types of access restrictions, such as not allowing trucks on part of the network, reserving
part of the network for residents, not allowing some types of traffic at particular times of the day, etc.3 The technological
progress in Automatic Number Plate Recognition (ANPR) cameras allows to enforce access restrictions at much lower cost
than in the past, when continuous police control was necessary.
The problem of diverted traffic may lead to policy competition between governments, as the decision authority over
different types of roads is typically assigned to different levels of government.4 In this paper, we define a two-road network
and study the competition between a ‘federal’ and a local government that each operate part of the network, using different
policy instruments. The local government uses different types of access restrictions to reduce local congestion and to limit
accident risks and local nuisances for the population in the small community. The instruments they use include standard
traffic calming measures (speed bumps, traffic lights, speed limits) but also formal access restrictions (a ban on through
traffic, a ban on through traffic by trucks). The federal government is assumed to have the authority to control traffic on
the main road using a congestion toll (possibly equal to zero). Note that we focus on a congestion toll and do not consider
traffic calming measures on the main road. There are two reasons for doing so. First, economists have argued for a long
time that high congestion on major roads could be tackled efficiently by pricing road use via tolls or congestion charges,
and the use of congestion tolls is taking off, mainly in urban areas (see Anas and Lindsey (2011) for an early evaluation).
The positive effects of existing pricing examples in London, Stockholm and Milan seem to be slowly reducing the political
opposition to congestion charges. Moreover, recent developments imply that there are no technical impediments to a more
widespread implementation of tolls in the future, including tolls on the major highways. Second, recent research has argued
that in countries with high fuel taxes many speed-related externalities are in fact internalized so that speed limits – the
most common traffic calming measure on major road connections – have limited efficiency gains (Tscharaktschiew (2020);
also see Santos (2017)).
The competition between the federal and local governments raises a number of interesting issues. How does the Nash
equilibrium compare to the second-best optimal decisions on tolls and traffic calming measures? Will the toll be too high
or too low? Will there be insufficient or excessive traffic calming? Given the use of traffic calming measures by the local
government, is it a good idea for the federal government to introduce a toll on the main road, or is doing so welfare-
reducing? Will the possibility of using new technologies to restrict access to certain types of traffic not lead to a proliferation
of abuses, in the sense that many local governments will restrict access even when it is socially undesirable to do so?
We find several results. First, implementing the first-best may require the use of three instruments: tolls on the main
road and the local road to control traffic flows, and traffic calming measures to reduce local accident externalities and other
nuisances in the local community. If for technical or political reasons a toll on the local road is not feasible, the second-
best social optimum implies a lower toll on the main road but more local traffic calming as compared to the first-best.
Second, the Nash equilibrium gives a toll that is too high and too much traffic calming compared to the second-best social
optimum. Third, given the widespread use of traffic calming measures by local authorities, the use of tolls on the main road
will reduce welfare, unless external accident costs and other nuisances of traffic through the local community are small.
Fourth, the existence of diverted traffic from the main road to the local community gives the latter strong incentives to
close the local road for through traffic, even when it is socially undesirable to do so. Interestingly, however, there is no such
conflict when the access restrictions apply to through traffic by trucks only.
1
Currie and Walker (2011) exploit the decline in traffic flows due to the introduction of electronic toll collection near highway toll plazas. They find that
the decline in traffic reduced prematurity and low birth weight among mothers within 2 km of a toll plaza by 10.8 percent and 11.8 percent, respectively,
relative to mothers living between 2–10 km from a toll plaza. Knittel, Miller, and Sanders (2016) studied the effects of automobile congestion on ambient
air pollution and local infant mortality in California. Their estimates suggest that a one standard deviation increase in traffic results in a 0.2% of a standard
deviation increase in infant deaths, where the largest effects are found for premature and low birthweight infants.
2
Using Dutch data, Ossakina and Verweij (2015) estimate that a traffic decline by 50% raises house prices by 1.4%. Poloni (2019) finds slightly larger
effects in the US.
3
Note that the website mentioned above only reveals the tip of the iceberg of traffic restrictions, because the contribution to this website is voluntary.
An increasing number of such restrictions are very local and not captured in the figures on the website. For example, many municipalities ban trucks,
except for local delivery; others have introduced car-free zones in some areas, etc.
4
For example, highways and other major roads may be operated at the national level, intermediate roads by regional governments and local roads by
municipalities.
93
Structure of the paper is as follows. Section 2 briefly reviews the literature. Section 3 sets up a simple network consisting
of a major road and a local side road that passes through a local community. If the highway is very congested and no
measures are taken, traffic has the opportunity to pass through the local community, where it causes congestion, accidents
and other nuisances for the local population. Section 4 derives the first- and second-best social optima. In Section 5 we
analyze the Nash equilibrium that follows from the competition between the federal and local decision maker. Moreover,
we study the desirability of imposing tolls on the motorway, knowing that the local government has traffic calming measures
in place. In Section 6 we focus on formal access restrictions. A numerical illustration of the model is presented in Section 7.
The application is based on a two-link network (the highway and an alternative road passing through local municipalities)
between the Belgian cities of Leuven and Brussels. Section 8 offers a conclusion, and it discusses limitations and possible
extensions of the model.
2. Non-price measures to control traffic externalities: a summary review of the literature
Economists have long focused on pricing instruments to control transport externalities. A number of studies have ana-
lyzed Pigouvian tolls within the framework of the one-dimensional city, using both continuous and discrete formulations
of location (see, among others, Strotz (1965), Anas and Xu (1999), and Wheaton (1998)). A series of theoretical papers fo-
cused on determining optimal tolls on single roads and on simple networks of parallel roads under different institutional
settings, covering both first- and second-best conditions (examples include, among many others, Arnott, de Palma and Lind-
sey (1993), de Palma and Lindsey (20 0 0), De Borger, Proost, and Van Dender (2005), and Ubbels and Verhoef (2008)).5
Yet another strand of research emphasized how to model and compute optimal tolls on more realistic and complex road
networks (see, for example, Verhoef (2002), Anas (2020), and Tikoudis (2020)).
Contrary to the economics literature, studies by transport planners and engineers emphasized the use of non-price mea-
sures. For example, planners have long emphasized the health benefits of car-free cities (see, for example, Van Nieuwenhuy-
sen and Khreis (2016)). Moreover, traffic calming measures were studied in the engineering literature for several decades.
Early papers by Elvik (2001) and Ewing (2001), and the manual put together by Ewing and Brown (2009), provided an
overview of available measures (speed bumps, traffic lights, roundabouts, etc.), mainly emphasizing technical aspects and
describing safety implications. In an experimental setting, Lee, Joo, Oh and Choi (2013) compared alternative traffic calming
measures in terms of their noise, pollution and safety benefits.
Although non-pricing measures are much more popular than road tolls, it is surprising that they received little attention
in the economics literature. Over the last decade, however, a number of studies on traffic calming measures did appear. In a
theoretical paper, De Borger and Proost (2013) studied the traffic externalities on a single road through a local community.
The local authority uses a very broad range of traffic calming instruments: (i) measures that reduce local externalities but
at the same time increase the user cost for all cars (for example, speed bumps or traffic lights); (ii) measures that reduce
external costs but do not affect the user costs of cars (pedestrian bridges, ring roads, etc.). The authors found that city
governments typically over-invest in traffic calming measures of the first type, because the cost of higher congestion borne
by nonresident drivers is not captured in the city’s objective function. There is no such overinvestment for measures of the
second type, as they do not increase local congestion. In a follow-up paper, Proost and Westin (2017) studied the competition
in traffic calming measures between two parallel suburbs, showing that each of the suburbs tries to send through traffic to
the other suburb by adding more traffic calming measures; this gives rise to an excessive use of traffic calming measures.
Recently, a detailed empirical analysis (Poloni (2019)) studied the implications of traffic calming measures using infor-
mation on 1187 measures implemented in the city of Portland, Oregon. His results suggest that traffic calming measures
indeed reduce traffic flows, and that this traffic reduction has significant effects on the hedonic prices of arterial streets. He
estimates an elasticity of housing prices with respect to the changes in traffic volumes due to the implementation of traffic
calming devices of -0.07. However, the effects are highly nonlinear, with the largest effects closest to the busiest streets. Un-
surprisingly, more effective interventions have the largest price effects. Although somewhat smaller, estimates of the impact
of traffic volumes on housing prices in the Netherlands are also highly significant (Ossokina and Verweij (2015)).
Several papers have explored the implications of individual traffic calming measures. For example, a few studies fo-
cused on the effectiveness of Low Emission Zones in developed economies, emphasizing the pollution benefits (see, e.g.,
Wolff and Perry (2010), Wolff (2014), Malina and Scheffler (2015)). The efficiency of imposing speed limits has been studied
by Nitzsche and Tscharaktschiew (2013). They use a general equilibrium land-use model to look at the relative efficiency
of general speed limits and more localized speed limits, taking into account the relocation of trips and activities within a
metropolitan area. They find that localized measures are more effective. Van Benthem (2015) derived the optimal speed limit
and discussed the implications for cost-benefit analysis of road projects. Most recently, Tscharaktschiew (2020) develops an
equilibrium model of highway speed choice, showing that speed-related externalities are already internalized in countries
with high fuel taxes. However, speed limits are still justified to the extent that some drivers fail to recognize the impact of
speeding on their own accident risks.
A few studies discuss the effects of limiting car ownership or imposing restrictions on who is allowed to drive. For exam-
ple, Li (2018) studies the welfare implications of using lotteries to allocate car licences in Chinese cities. Davis (2008) found
5
There also exists a large literature on the use of other pricing instruments such as fuel taxes (examples include Parry and Small (2005) and Bento
et al. (2009)).
94
Fig. 1. Structure of the network.
Table 1
Notation and assumptions on types of traffic.
Type of traffic Notation Remarks
Commuting from O to D (outsiders) X̄OD Fixed

y
→ Via local community: secondary road y XOD Depends on generalized cost x versus y
y
→ Via main road x X̄OD − XOD Depends on generalized cost x versus y
Commuting from L to D (locals) ȲLD Fixed
Non-commuting from O to C (outsiders) XOC Price-responsive
Non-commuting from L to C (locals) YLC Price-responsive
no evidence that a policy of alternating between even and uneven number plates to allow access to the city improved
air quality in Mexico-city, because it increased car ownership and added more polluting cars to the stock. Lastly, trad-
able permits have been proposed as an alternative for road pricing to restrict traffic volumes (see, for example, Yang and
Wang (2011), Wang et al. (2012), and Akamatsu and Wada (2017)). Recently, Nie (2017) jointly considered tradeable driving
rights and restrictions of the even/uneven number plate type.
Compared to the literature reviewed above, this paper has three distinct characteristics. First, it focuses on managing
local traffic problems in a small network, emphasizing competition between two levels of government: a federal authority
controlling tolls, a local government focusing on traffic calming. Second, it emphasizes the role of traffic calming measures in
controlling diverted traffic through local communities. Third, it studies the welfare implications of formal access restrictions
at the local level.
3. Model description: demand, costs and user equilibrium
The network. We consider a simple network (see Fig. 1 for an illustration). It consists of a major road OD and a secondary
road that passes through a local community. People in the local municipality live in L, and location C can be interpreted
as a local destination (such as a shopping or school area). Location D can be interpreted as a major employment center
where much commuting has its destination. Finally, location O is a major residential area that generates much traffic to the
employment area.
The model studies car use in the peak-period only, and it emphasizes the problems caused by traffic that is diverted
from the main road and passes through the municipality. We therefore assume for simplicity that total commuting demand
is fixed, but commuters from O to D do have route choice. Moreover, without loss of generality and in order to focus on the
main trade-offs of interest, we normalize the distances CD and OL to zero.
Turning to specifics, traffic originating from O is denoted X, and traffic originating from the local community is denoted Y.
Commuting traffic by outsiders (they drive from O to D) and by local inhabitants of the municipality that work in D (hence,
traffic from L to D) are denoted by X̄OD , ȲLD , respectively. The horizontal bar indicates that these traffic levels are exogenous
and fixed. Moreover, both locals and outsiders make some trips that have the local community as final destination; this
generates traffic from L to C and from O to C, respectively. We denote this non-commuting traffic by XOC ,YLC , respectively.
This traffic is assumed to be price-responsive, see below.
Importantly, as emphasized above, traffic from O to D has route choice; they can go via the main road or through the
local community. The use of this local road suffers from potentially large external costs when many drivers between O and
D take the detour via the suburb to avoid congestion on the main road. We denote the number of cars driving from O to D
y y
that are diverted from the main road and drive through the local municipality XOD ; the remainder, equal to X̄OD − XOD , uses
the main road. In Table 1 we summarize the different types of traffic, the notation used, and the assumptions made.
95
Demand, costs and accident externalities. Commuting demand is fixed, as mentioned above. Demand for XOC ,YLC is price-
responsive. To simplify, we assume that these demands are proportional:
YLC = ρ XOC (1)

This is a strong assumption. It implies that the maximum willingness to pay of both types of road users is the same.
Moreover, it implies that an exogenous increase in the attractiveness of visiting the local community (due to more shopping
opportunities, new or better schools, etc.) proportionately affects the demand for trips by outsiders and local residents.6
However, it much simplifies the analysis, because it implies that a single demand function can be used, and only the pro-
portion of local traffic versus traffic by outsiders varies. We specify demand by the inverse demand function:
P = a − b(XOC + YLC ) = a − b(1 + ρ )XOC . (2)

There are two types of externalities. First, on both the main road and the local road there is congestion, captured by
linear congestion functions. Second, traffic passing via the local road causes a series of nuisances (accident risks, noise, local
air pollution, congestion) for the local population (residents, pedestrians, bikers, playing children, etc.).
We also consider two sets of policy instruments. Our second-best analysis assumes that a toll can onlu be levied on the
main road (controlled by the federal authority); moreover, the local government may have the authority to implement traffic
calming measures on the road passing through the local community. For purposes of comparison we also briefly consider
the first-best outcome in which we assume that the federal government has three instruments available: a toll on the main
road, a toll on the local road and a traffic calming instrument on the local road. Traffic calming has two potential effects:
it may increase the generalized cost of passing through the local community (because it slows down traffic), and it reduces
the accident risk and other inconveniences for the local population. The toll we consider is a simple uniform peak-period
toll; it only affects the volume of road traffic in the peak, but it does not vary over time and cannot be personalized.
We denote traffic via the main road by index x, via the local road by index y. The generalized costs of using the main
road and the local road are written as:
GCx = αx + βx (X̄OD − XOD

y
) + τx
y
GCy = αy + (βy + δ Z ) XOD + (1 + ρ )XOC + ȲLD + τy (3)
y
The generalized cost via x depends on all traffic taking this route; this is all traffic from O to D minus the traffic XOD that
is diverted to the municipal secondary road y. The generalized cost via y depends on all flows passing through y: all traffic
y
originating from the local community L (YLC , ȲLD ), traffic from O to D but taking the secondary road (XOD ), and traffic from O
with C as final destination (XOC ). The tolls on the main road and the local road are τ x and τ y , respectively. We denote the
level of traffic calming by Z. The parameter δ captures the degree to which investing in traffic calming affects congestion on
the secondary road through the local community. For example, speed bumps or traffic lights slow down traffic and lead to
extra delays.
The congestion externality is captured via the slope parameters β x ,β y in the generalized costs (3). The cost of accident
risks and other local nuisances for the municipal population is formulated as a function of the traffic volume and the traffic
calming measures Z:
y
(θ (1 − γ Z ) ) XOD + (1 + ρ )XOC + ȲLD
It is defined as the product of the external cost generated by an extra car due to increased accident risk and other
nuisances, (θ (1 − γ Z)), times the total traffic volume through the local community (XOD + (1 + ρ )XOC + ȲLD ). The external
y
cost per unit extra traffic in the absence of traffic calming measures is denoted θ and is taken as constant here to keep
the model tractable. In reality external costs can be a convex (air pollution) or concave function (noise) of traffic volume.
Introducing traffic calming Z reduces this cost; the parameter γ captures the effectiveness of traffic calming in reducing
nuisance costs.
We assume the total cost of traffic calming to the government is given by the quadratic function 0.5cZ2 . It captures
the cost of enforcement efforts, the maintenance costs as well as the annuity of the investments in traffic calming. Our
specification implies that the marginal cost is increasing in Z. This may reflect higher costs of monitoring and enforcement,
higher costs for more performant noise screens or speed bumps, or an increasingly sophisticated combination of traffic
safety measures of different types; for example, the local authority may start with traffic lights, then add speed cameras,
then build a pedestrian bridge, etc.
By considering various combinations of the parameters (δ , γ , c), we can represent a wide variety of local traffic calming
policies. This is illustrated in Table 2a. Note that the measures in the table are measures Z that can almost continuously be
varied; moreover, they do not discriminate among different types of traffic. An example is a local speed limit. It decreases
the speed for all local and through traffic on the local road and has a positive effect on safety. We study such measures in
Sections 4 and 5 below.
6
Note that both types of traffic use the same road between L and C. Therefore, any exogenous increase in demand for trips with the local community as
final destination (XOC ,YLC ) will raise local congestion; this in turn leads to a downward feedback effect on demand that partly compensates for the initial
demand increase.
96
Table 2a
Characteristics of different traffic calming measures.18
Effect on local Reduction in local Implementation cost for

Local Traffic calming measure(Z) congestion(δ ) external effect(γ ) local government(0.5cZ2 )
Speed limit High Medium Low

Speed bumps High Medium Medium
Traffic lights High Medium Medium
Pedestrian bridge or tunnel None High (accidents) High
Cycling paths None High (accidents) High
Low Emission Zone Medium High (pollution) High
City bypass High High Very high
Table 2b
Selective access restrictions for diverted traffic.
Selective access restrictions for Reduction in local Implementation cost for

diverted traffic Effect on local congestion external effect local government
No through traffic High High Low

No access for trucks Medium Medium Low
Some traffic calming measures do not fit the above description. Selective access restrictions, such as a ban on through
traffic, do discriminate between local and through traffic (see Table 2b); moreover, they are discrete decisions (they are
imposed or not). To avoid adding extra notation, we model selective access restrictions via a reformulation of the user
equilibrium equations (3), directly imposing the restrictions. Direct access restrictions are analyzed in Section 6.
Initial user equilibrium. We assume the split of traffic from O to D between routes x and y is governed by the Wardrop
condition so that, if both routes are used in equilibrium, they must have equal generalized costs. Moreover, for price-
responsive demand it must be the case that, in equilibrium, generalized price (or willingness to pay) equals generalized
cost. We therefore have the following equilibrium conditions for the split between the main and the local road and for the
traffic level on the local road, respectively:
αx + βx (X̄OD − XOD
y
) + τx = αy + (βy + δ Z )(T y ) + τy
a − b(1 + ρ )XOC = αy + (βy + δ Z )(T y ) + τy (4)
whereTy is total traffic via the local community y:
y y
T = XOD + (1 + ρ )XOC + ȲLD . (5)
Solving this system we get the user equilibrium flows:
1 + ρ
y
XOD = X̄OD [βx (b + βy + δ Z )] − ȲLD b(βy + δ Z ) + b(τx + αx − αy − τy ) − (βy + δ Z )(a − τx − αx )

−1
XOC = βx (βy + δ Z )(X̄OD + ȲLD ) − βx (a − αy − τy ) − (βy + δ Z )(a − τx − αx ) (6)

where
= (1 + ρ )[β x b + (b + β x )(β y + δ Z)] > 0.
It will be useful to consider the effect of the policy variables on demands. Differentiating (6), the effects of increasing
traffic calming Z are:
∂ XOD
y
(1 + ρ )2 δ b
=− (H ) < 0
∂Z 2
∂ XOC (1 + ρ )δβx
=− (H ) < 0
∂Z 2
∂Ty ∂ XOD
y
∂ XOC (1 + ρ )2 δ
= + (1 + ρ ) =− [(b + βx )(H )] < 0 (7)
∂Z ∂Z ∂Z 2
where
(H ) = bβx (X̄OD + ȲLD ) + b(τx + αx − αy − τy ) + βx (a − αy − τy ) > 0. (8)
Expression (8) is positive; this directly follows using the equilibrium conditions (4).
Expressions (7) show that traffic calming measures that slow down traffic on route y (traffic lights, speed bumps, speed
limits) can be an effective instrument to reduce traffic flows through the local community. These measures increase the
generalized cost (δ > 0), reducing both diverted traffic XOD and price-sensitive demand XOC . However, (7) also implies that
y
measures that have no effect on local congestion (δ = 0), such as pedestrian bridges or separate cycling paths, have no
effect whatsoever on traffic flows on the network.
97
The effect of the tolls on equilibrium demands for use of the local road are as follows:
∂ XOD
y
(1 + ρ )(b + βy + δ Z ) ∂ XOD
y
( 1 + ρ )b
= >0 =− <0
∂ τx ∂ τy
∂ XOC (βy + δ Z ) ∂ XOC βx
=− <0 =− <0
∂ τx ∂ τy
∂Ty ∂ XOD
y
∂ XOC (1 + ρ )b ∂Ty (1 + ρ )(b + βx )
= + (1 + ρ ) = >0 =− <0 (9)
∂ τx ∂ τx ∂ τx ∂ τy
y
The toll on the main road has two effects. First, it increases traffic diversion XOD to the local road. Second, the resulting
increase in congestion in turn reduces traffic with a local destination XOC . The first effect is stronger than the second, so
that the toll increases total traffic on the local road Ty . Unsurprisingly, tolling the local road reduces all traffic using the local
road.
Welfare. There is a higher level government that cares for all road users; it also cares for the accident risks and other
nuisances experienced by the inhabitants of the local municipality. The objective function of this ‘federal’ government is the
sum of consumer surplus for price-sensitive traffic minus all generalized costs, plus toll revenues minus the costs of traffic
calming measures, minus external costs7 :
(1+ρ )XOC
P (q )dq − (X̄OD − XOD
y
)GCx −(T y )GCy + τx (X̄OD − XOD
y
) + τy Ty
0
−0.5cZ 2 − (θ (1 − γ Z ) )(T y ) (10a)
Note that the toll τ y on the local road will be zero throughout most of our analysis; it only matters to describe the first-
best, see below. Using our demand specification (2) and the equilibrium conditions (4) we can rewrite (10a), after simple
algebra, as:
b

[(1 + ρ )XOC ] − αx + βx (X̄OD − XOD ) X̄OD + ȲLD + τx (X̄OD − XOD ) + τy Ty
2 y y
2
−0.5cZ 2 − (θ (1 − γ Z ) )(T y ) (10b)
A local government defends the interests of the inhabitants of the local municipality. It only considers the surplus and
the generalized costs for the local population, ignoring the effect on outsiders.8 It does not have the authority to impose a
local toll. Its objective function is:
(1+ρ )XOC
ρ
P (q )dq− YLC + ȲLD GCy − 0.5cZ 2 − (θ (1 − γ Z ) )(T y ). (11a)
1+ρ 0
Straightforward algebra shows that it can be rewritten as:

b1+ρ
(YLC )2 − ȲLD GCy − 0.5cZ 2 − (θ (1 − γ Z ) )(T y ) (11b)
2 ρ
4. The first- and second-best social optima
4.1. The first-best
To obtain the first-best, we assume the federal government has the authority to impose tolls τ x ,τ y on x and y and that,
in addition, it can optimize the level of traffic calming Z. Using (10a), the problem is, therefore9 :
(1+ρ )XOC
Max Wf = P (q )dq − (X̄OD − XOD
y
)GCx − (T y )GCy
τx ,τy ,Z 0
+ τx (X̄OD − XOD
y
) + τy T y − 0 . 5 c Z 2 − θ ( 1 − γ Z ) T y (12)
In this expression, the traffic volumes obviously depend on the two tolls and on local traffic calming: we have
XOC (τx , τy , Z ), XOD (τx , τy , Z ). Using equality between generalized price and generalized cost in equilibrium, rewriting the
y
7
Alternatively, the objective function could also be written by deleting toll revenues and excluding the tolls from the definition of generalized costs, see
expressions (3).
8
In reality, of course, traffic with the local community as final destination does bring benefits to the local community in the form of, e.g., extra activities
for local shopkeepers, etc. In the current model focusing on commuting traffic having route choice, these potential benefits are ignored.
9
Alternatively, the first-best can be obtained by assuming that the government directly controls the traffic levels and the level of traffic calming. One
y
easily shows that maximizing (10a) with respect to XOD , XOC and Z – and imposing the equilibrium conditions that the two generalized costs equal the
generalized price – is equivalent to solving (12).
98
first-order conditions yields – where, to arrive at the third one, we used the optimal toll expressions – the following three
conditions:
τx = βx (X̄OD − XOD
y
) (13a)
τy = (βy + δ Z )(T y ) + θ (1 − γ Z ) (13b)
θ γ (T y ) = cZ + δ (T y )2 (13c)
Tolls equal marginal external cost on both roads. The third expression states equality between the marginal benefit (left-
hand side) and the marginal cost (right-hand side) of investment in traffic calming Z. The marginal cost consists of the
marginal cost of installing the traffic calming measures plus the extra congestion cost it induces.
The expressions (13a)–(13c) describing the first best imply that in general the two tolls are used to control traffic flows,
and traffic calming serves to optimize the level of the accident and nuisance externality for the local community, conditional
on given traffic flows. Do note that under some conditions a corner solution with Z=0 may result. Traffic calming has
two effects: it reduces accident risks and local nuisances, but it also raises congestion for the local road users. Expression
(13c) implies that a corner solution with Z=0 is optimal when the expected marginal external accident and nuisance cost is
small relative to the cost of extra congestion. A sufficient condition for Z>0 is that θ γ > δ Ty . Traffic calming is used only if
the effect of more local traffic through the municipality on accident risks and other local inconveniences exceeds its effect
on extra congestion. If this condition does not hold, traffic calming is a cure worse than the disease, and the social optimum
is implemented with imposing the two tolls only.
4.2. The second-best social optimum
Reconsidering (12) but assuming a local toll τ y cannot be implemented, we have the first-order conditions (after rear-
rangement):
y
∂ XOD
y
∂T
τx − βx (X̄OD − )y
XOD + [(βy + δ Z )(T ) + θ (1 − γ Z )]
y
=0 (14a)
∂ τx ∂ τx
∂Xy y
− τx − βx (X̄OD − XOD
y
) ∂ ZOD − [(βy + δ Z )T y + θ (1 − γ Z )] ∂∂TZ (14b)
+θ γ T y = cZ + δ (T y )2
The first expression (14a) implies that, due to the inability of tolling y, the federal toll will be below its first-best level.
To see this, note that the toll on the highway raises traffic through the local town ( ∂∂Tτ >0, see (9)), the second term on the
y
x
left-hand side is positive. This immediately implies that τx − βx (X̄OD − XOD )<0. To interpret the second expression (14b), we
y
first use (5) to rewrite it as

∂ XOD
y
y
) + (βy + δ Z )T y + θ (1 − γ Z )
∂Z
∂ XOC
−[(βy + δ Z )T + θ (1 − γ Z )] (1 + ρ )
y
+ θ γ T y = cZ + δ (T y )2
∂Z
Straightforward algebra, using (5) and (14a), further shows that
(τx − βx (X̄OD − XOD ) + (βy + δ Z )(T y ) + θ (1 − γ Z )) > 0.

y
Using this result, we can finally rewrite first-order condition (14b) as

{} + θ γ T y = cZ + δ (T y )2 (14c)
where
∂ XOD
y
{} = − τx − βx (X̄OD − XOD
y
) + (βy + δ Z )T y + θ (1 − γ Z )
∂Z
∂ XOC
−[(βy + δ Z )T + θ (1 − γ Z )] (1 + ρ )
y
≥0
∂Z
is necessarily non-negative.
Comparing (14c) to the first best-rule (13c) implies that, in the absence of a local toll instrument, the second-best rule
identifies an extra benefit of traffic calming. It reduces accident and congestion externalities in the local town and it gener-
ates higher toll revenues on the main road; these factors more than outweigh the extra cost induced by traffic calming, viz.,
the increase in congestion on the main road. The extra benefit induces more traffic calming than in the first best.10
10
For traffic calming measures that do not affect congestion on the local road y, such as biking paths or a pedestrian bridge, we have δ = 0, so that (7)
implies that = 0. In these cases, therefore, the second-best rule for traffic calming equals the first-best rule. Note that this does not imply equal Z-values,
because the tolls differ.
99
We summarize in Proposition 1.
Proposition 1. The first- and second-best solutions
a. If traffic on the local road imposes large marginal external costs of accident risks and other nuisances on the local community,
the first-best requires the use of three instruments: a toll on the use of the main road, a toll on the use of the local road, and
traffic calming on the local road.
b. If the marginal external cost is relatively small, no traffic calming measures are necessary in first-best.
c. The inability to toll the local road implies that the second-best optimum yields a lower toll on the main road and more traffic
calming on the local road compared to the first-best.
5. Vertical competition: tolls, traffic diversion and local traffic calming
In this section, we study the vertical competition between a higher authority (the ‘federal’ level), responsible for imposing
tolls on x, and a local authority that uses local measures to limit local congestion and other external costs imposed upon
the local population. We focus here on the use of tolls and traffic calming measures such as speed bumps, traffic lights,
pedestrian bridges, etc. As mentioned before, formal access restrictions require a slightly different approach; they are studied
in Section 6 below. Moreover, we study the interaction between the two government levels within a Nash equilibrium
framework. A Stackelberg model within a leader-follower setting is less convincing, because the two players would have
difficulties to credibly commit to the policies they announce. In this sense, Nash equilibrium is preferable as a description
of behavioral outcomes.11
We do realize that in some countries, there is a cooperative bargaining process between federal and local authorities that
results in better outcomes than the Nash equilibrium. In theory, when all instruments can be agreed upon, bargaining can
result in the first-best outcome. What the current paper analyses is the non-cooperative starting (threat) points, and how
these threat points depends on the allocation of policy instruments.12
5.1. The local government’s problem: how much traffic calming?
Let a toll τ x be in place, imposed by the federal authority (the toll can of course be zero). The local level controls
investment in traffic calming on y. The local government solves (see 11a):
(1+ρ )XOC
ρ
Max P (q )dq− YLC + ȲLD GCy − 0.5cZ 2 − (θ (1 − γ Z ) )(T y )
Z 1+ρ 0
The first-order condition for the optimal choice of Z can be written as:

∂Ty
− (βy + δ Z )(YLC + ȲLD ) + θ (1 − γ Z ) + θ γ T y = cZ + δ T y (YLC + ȲLD ) (15)
∂Z
Compared to the first-best rule (given by θ γ Ty = cZ + δ (Ty )2 , see (13c) above), we note two main differences. First, the
left-hand side (15) indicates that the local government enjoys an extra benefit: more traffic calming negatively affects the
traffic flow through the municipality, reducing local accident risks and local congestion. Second, the right-hand side reflects
the fact that the marginal social cost of investing in Z is lower because the local authority only considers the congestion
effect of the traffic calming measures for traffic demand by the local population. On both accounts one expects the local
authorities to overinvest in traffic calming compared to the first-best.
Demands XOD , XOC , YLC all depend on τ x and on Z, so that we can write (15) as an implicit function ϕ (Z, τ x ) = 0. This
y
implicitly defines the reaction functionZr (τ x )of the local government, describing how the federal toll affects the choice of
traffic calming. Using the implicit function theorem we then derive the effect of a higher toll on road section x on the
optimal traffic calming investment by the local government as:
∂φ (Z,τx )
d Z r ( τx ) ∂τ
= − ∂φ (Z,xτ ) (16)
d τx x
∂Z
The denominator is negative by the second-order condition of the local government’s optimization problem. In
Appendix 1 we show that the numerator is unambiguously positive. Expression (16) therefore implies that the local govern-
ment will respond to a toll increase on the main road by raising traffic calming: dZdτ(τx ) > 0. This is plausible: the higher toll
r
11
Commitment is problematic, both for the federal and the local government. Consider the federal problem. Investing in the technology required to
implement tolls on the main road may signal that the federal government is highly committed to imposing tolls, but it is much harder to commit to the
toll level: the investment is a sunk cost, and toll levels can easily be changed after observing the investment in traffic calming by the local government.
For the local government, commitment is somewhat more credible. Eliminating speed bumps or pedestrian bridges may be too costly to consider, and
budgetary constraints may make additional investments problematic. For completeness’ sake, in an earlier version of the paper we did briefly look at
Stackelberg leader-follower models. There we showed that these models imply less traffic calming and a lower toll as compared to the Nash equilibrium.
12
See De Borger and Proost (2016) for an application of a bargaining model to road tolling in a different setting.
100
diverts traffic from the main road through the local town, generating extra congestion and other local externalities for the
local population. To counteract this, the local government raises traffic calming on the local road.
The implicit function theorem also allows us to investigate the effect of some relevant parameters of the problem on
traffic calming. We find that an increase in γ (traffic calming is more effective in reducing external nuisance costs) increases
traffic calming; the same holds when the nuisances imposed on the local population (higher θ ) increase. The effect of a
higher δ (the degree to which traffic calming raises generalized cost) is ambiguous: at given traffic flows it certainly reduces
traffic calming, but it also affects the demand for trips.
5.2. Traffic calming and the federal toll
Assuming the local authority has traffic calming measures in place, the optimal federal toll maximizes its welfare function
(see (10a)) with respect to the toll τ x . Of course, as it considers the welfare of all road users and it takes account of all
externalities, the first-order condition is the same as (14a), the condition for the second-best optimal toll. We rewrite is as
follows:
y
∂ XOD
y
∂T
y
) = [(βy + δ Z )(T y ) + θ (1 − γ Z )] (17)
∂ τx ∂ τx
The right-hand side is positive, confirming that the federal toll will be below marginal external cost (see the left-hand
side). The toll raises traffic on the local road, which the federal government does not control. A lower toll is therefore set
because it limits traffic diverted towards the local road. Note that if congestion on x is not a major problem, the optimal toll
might easily be zero, and we have a corner solution.
Suppose congestion on the main road is sufficiently relevant so that we have an internal optimum. Rewrite (17) as an
implicit function φ (Z, τ x ) = 0, implicitly defining the federal government’s reaction function τxr (Z ). The effect of traffic
calming by the local community on the federal toll is:
∂ϕ (Z,τ )
dτxr (Z ) x
= − ∂ϕ (∂Z,Z τ ) . (18)
dZ x
∂ τx
d τ r (Z )
In Appendix 2 we show that this expression is positive; we have dZ x
> 0. More traffic calming by the local authorities
leads the federal government to increase the toll. Traffic calming shifts demand back to the main road, and the federal
government responds by raising the toll.
We further find that an increase in γ (more effective traffic calming) increases the toll at a given level of traffic calming.
Higher accident costs (an increase in θ ) reduce the toll. The effect of a higher δ is again ambiguous.
5.3. The Nash equilibrium
The competition between the local and federal authorities produces a Nash equilibrium with a toll that is too high and
has too much traffic calming compared to the second best optimum. To show this, we proceed as follows.
First, rewriting (14b), the effect of Z on total federal welfare W(f) is:
∂W ( f ) ∂ XOD
y
= − τx − βx (X̄OD − XOD
y
)
∂Z ∂Z
∂Ty
−[(βy + δ Z )T + θ (1 − γ Z )]
y
+ θ γ T y − cZ − δ (T y )2 (19)
∂Z
Then note that the optimal Nash equilibrium value ZNE solves the first-order condition for the local authority’s choice of
traffic calming, as given by (15) above; it therefore satisfies:

∂Ty
− (βy + δ Z NE )(YLC + ȲLD ) + θ (1 − γ Z NE ) + θγ Ty
∂Z
= cZ NE + δ T y (YLC + ȲLD ) (20)
where all traffic volumes and derivatives are evaluated at the optimal Nash equilibrium value ZNE . Combining (19) and
(20) we easily show, using the definition of Ty given in (5), that
∂W ( f ) ∂ XOD
y
|Z=ZNE = − τx − βx (X̄OD − XOD y
)
∂Z ∂ Z
∂ T y
− (βy + δ Z NE ) + δ T y (XOD
y
+ XOC ) (21)
∂Z
This expression has two implications. First, consider traffic calming measures that do not slow down traffic on the munic-
∂Xy ∂Ty
ipal road y. In that case δ = 0. This implies that traffic calming Z does not affect traffic levels: by (7) we have ∂ OD
Z
= ∂ Z = 0.
101
Fig. 2. Illustrating the Nash equilibrium and the second-best social optimum.
It then immediately follows that (21) equals zero. Conditional on a given toll, the Nash equilibrium traffic calming level is
therefore second-best socially optimal. Knowing that the toll rule – describing the behavior of the federal government – is
the same as the second-best optimal rule, this basically means that the Nash equilibrium coincides with the second-best
social optimum.
Second, in all other cases, the right-hand side of (21) is necessarily negative. The first term is negative, because traffic
calming Z reduces diverted traffic and the toll is below external congestion cost. Moreover, the second term is negative as
well: starting from the definition (3) of the generalized cost of road y, and using (5), (7) and (8), we easily show:
∂Ty ∂ GCy δ (1 + ρ )2
(βy + δ z ) + δT y = = bβx (H ) > 0 (22)
∂Z ∂Z 2
Note that this expression just captures the positive effect of traffic calming on the generalized cost via y.
Combining these results we have
∂W ( f )
∂ Z |Z =Z NE <0.
Evaluated at the Nash equilibrium, federal welfare would therefore decline if more was invested in traffic calming. Dif-
ferently stated, at the Nash equilibrium the local level overinvests relative to the second-best optimum. Moreover, as the
federal government’s reaction function τxr (Z ) is positively sloped, the second-best optimum implies both a lower toll and
less traffic calming than the Nash equilibrium. The competition between the local and federal level therefore leads to too
high tolls and too much local traffic calming.
The Nash equilibrium and the second best social optimum are illustrated in Fig. 2. The second best optimum is located on
the reaction function of the federal government’s toll as function of the level of local traffic calming. The Nash equilibrium
therefore involves a higher toll and a higher level of traffic calming than the second best optimum. It also implies higher
toll and traffic calming levels than when the two authorities would only use one instrument.
We summarize our findings in the following proposition.
Proposition 2. Suppose the federal government controls a toll on the main road, the local government controls local traffic calm-
ing instruments.
a. A higher toll on the main road raises traffic calming by the local authority.
b. More traffic calming in the local community raises the optimal federal toll.
c. For traffic calming measures that raise the generalized cost of traffic on the local road (speed bumps, traffic lights), the Nash
equilibrium implies too high tolls on the main road and too much traffic calming at the local level compared to the second-best
optimum.
102
d. For traffic calming measures that do not raise the generalized cost of using the local road (pedestrian bridges, biking paths),
the Nash equilibrium is second-best socially optimal.
5.4. Is a toll on the motorway welfare-improving?
The inefficiency of the vertical competition in tolls and traffic calming between the two governments raises another
issue. Given that traffic calming is widely used by many local authorities, is it a good idea for the federal government to
implement a federal toll on the main road, or is it better not to do so?
To find out, we compare (federal) welfare in the Nash equilibrium (where both instruments are used) with welfare when
the only instrument used is traffic calming, as decided by the local authority. In terms of Fig. 2 above, we compare welfare
at the intersection of the reaction functions with welfare at the intersection of the local authority’s reaction function with
the horizontal axis.
When there is no toll and only Z is implemented by the local level, federal welfare can be written as:
b 1 2
W 1( f ) = (1 + ρ )2 XOC − GCx1 (X̄OD + ȲLD ) − 0.5c (Z 1 )2 − θ (1 − γ Z 1 )T y,1 (23)
2
The superscript ‘1 refers to the case ‘Z only’. Federal welfare at the Nash equilibrium can similarly be written as (demand
levels and costs are indexed ‘NE’):
b NE 2
W NE ( f ) = (1 + ρ )2 XOC − GCxNE (X̄OD + ȲLD ) + τxNE (X̄OD − XOD
y,NE
)
2
−0.5c (Z ) − θ (1 − γ Z )T
NE 2 NE y,NE
(24)
The welfare difference is:
b
2 2
W NE ( f ) − W 1 ( f ) = ( 1 + ρ )2 NE
XOC 1
− XOC
2

2 2
−(GCxNE − GCx1 )ȲLD − 0.5c (Z NE ) − (Z 1 )

−θ T y,NE − T y,1 − τxNE XOD
y,NE

+βx (XOD
y,NE y,1
− XOD )X̄OD + θ γ T y,NE Z NE − T y,1 Z 1 (25)
Note that ZNE > Z1 , see Fig. 2. Moreover, we show in Appendix 3 that:
NE 1 NE 1 y,NE y,1
GC > GC , XOC < XOC , XOD > XOD , T y,NE > T y,1 . (26)
The inequalities in (26) are intuitive. The generalized cost at the Nash equilibrium exceeds the one when only traffic
calming is implemented. This also leads to lower price-sensitive demand: XOC NE < X 1 . The combination of more traffic calm-
OC
y
ing and a higher toll at the Nash equilibrium leads to more traffic diverted from the main road to the local road; XOD is
therefore higher at the Nash equilibrium. This implies that the effect of the higher toll and the reduction in price-sensitive
demand on y dominates the effect of more traffic calming. Finally, because of the increase in diverted traffic, total demand
Ty using route y is higher as well.
Using (26) and (25), it follows that – assuming local authorities implement traffic calming measures – imposing tolls
on the main road may be a bad idea, reducing overall welfare. To see this, note that all terms on the first three lines in
(25) are unambiguously negative; only the two terms on the last line are necessarily positive. Introducing a toll on the main
road will therefore reduce federal welfare, unless the terms on the last line dominate; this happens when the main road
is highly congestible (β x large) and traffic calming is very effective (γ large). In that case, the toll generates high savings in
congestion costs on the main road and, since the Nash equilibrium implies higher traffic calming than when no toll were
imposed, large reductions in accident costs and other nuisances in the local community.
We summarize our findings in the following proposition.
Proposition 3. The allocation of decision authority.
a. If the local authority uses local traffic calming measures, imposing a federal toll on the main road can be welfare-reducing.
b. A toll only increases welfare if the main road suffers from very high congestion and traffic calming is quite effective in reducing
local accident costs.
6. Formal access restrictions
In this section, we study the effect of formally restricting access to the municipal road y for through traffic. Formal
access restrictions received little attention in the academic economic literature, maybe because they often tackle very local
problems. However, they are very common in the real world. Two examples help to illustrate this.
The first case concerns a medium sized Belgian town (Leuven) where one of the main access roads is heavily congested
during the morning peak. One 2 km stretch of the main road can be avoided by using a smaller road through a residential
103
area. With growing incoming traffic and more traffic lights on the main access road, part of the incoming traffic used the
residential road to escape congestion. To protect the neighborhood from excessive road traffic on its residential road, the city
council restricted use of the residential road to residents. To implement this policy, all number plates of residents are regis-
tered in a database so that – using ANPR camera’s – all non-residential car users that enter the city via the residential road
can be identified and fined. Visitors to the neighborhood can enter; however, they have to leave via their entry route. This
avoids through traffic abusing the visitor status. A crude cost-benefit analysis suggested that this policy was unjustified.13
As a second illustration, a local municipality near the harbor of Ghent introduced a formal access restriction for trucks.
The problem was that the main road connecting the port with the hinterland happened to be slightly shorter when taking
a detour via a local road through the municipality as compared to staying on the main road. The pass through of many
large trucks implied strong negative externalities for the local residents. It was therefore decided to introduce a policy of
selective entry, implemented via ANPR cameras at both ends of the local road. All trucks that cross the area in less than
4 min (the time it takes to use the main road) are assumed not to deliver in the local municipality and are severely fined.
Simple calculations in this case suggested that the ban on trucks was economically justified.14
As mentioned in Section 2, the discrete and selective nature of access restrictions requires a slightly different approach
from the analysis in Sections 3 and 4. In the remainder of this section, we first consider access restrictions that apply to all
through traffic. We then extend the model to study such a ban only applying for trucks.
6.1. No through traffic allowed on the local road
To emphasize the role of access restrictions, we assume there is no toll on the main road; we briefly discuss below how
the results change when a federal toll is in place. Moreover, the local authority uses no other traffic calming measures apart
from not allowing through traffic. In other words, we assume in this section that τ x = 0; τ y = 0; Z = 0. Importantly, we
ignore implementation costs (the costs associated with installing the technology) throughout this section.
Not allowing through traffic to pass via the local road y implies the restriction that no diverted traffic is allowed,
y
i.e.,XOD = 0. This has two implications. First, the generalized costs are now formulated as
GCx = αx + βx X̄
OD
GCy = αy + βy (1 + ρ )XOC + ȲLD
Second, the Wardrop condition that equalizes generalized costs on roads x and y does not apply. We find the equilibrium
traffic flow XOC originating in O and having the local community as final destination by equating the generalized price and
the generalized cost of using road y:

a − b(1 + ρ )XOC = αy + βy (1 + ρ )XOC + ȲLD
This immediately yields:
a − αy − βyȲLD
XOC = . (27)
(1 + ρ )(b + βy )
6.1.1. The federal point of view

Does federal welfare increase when through traffic is prohibited? The restriction affects consumer surplus of non-
commuting traffic, it affects congestion on both the main and the local road, and it affects external accident costs.
Given the restriction of zero through traffic, federal welfare is given by
(1+ρ )XOC
P (z )dz − X̄OD GCx − (1 + ρ )XOC + ȲLD GCy − θ (1 + ρ )XOC + ȲLD
0
In what follows, we use superscripts ‘R’ to denote the restriction of zero through traffic. Federal welfare can then be
rewritten after simple algebra:
b R 2

W R( f ) = (1 + ρ )XOC − αx + βx X̄OD X̄OD − αy + βy (1 + ρ )XOC

R
+ ȲLD ȲLD
2

−θ (1 + ρ )XOCR
+ ȲLD
13
In the initial equilibrium traffic counts suggested 711 vehicles per time unit on the main road and 200 using the residential local road; about
half of these consisted of diverted traffic, the other half was traffic by local residents. Using the official European estimates of external costs
(European Commission, 2019) , the conclusion was that it was difficult to justify the policy from a global perspective. It seems it was implemented by
taking a very local perspective that wanted to discourage incoming traffic to favor local residents; it has been approved after public consultation of the
residents living near the residential road. As argued in Proposition 4, a local perspective leads to a mismatch between costs and benefits from a more
global point of view. Also see the analysis that follows.
14
Focusing on the reduction in external costs for the local residents and the implementation costs of the policy (the congestion effects were small,
because truck traffic is distributed over the 24 hours of the day), it was found that the reduction of external costs was more than large enough to justify
this selective truck access.
104
We are interested in comparing welfare with and without the access restrictions. Unrestricted welfare (we use super-
scripts ‘U’) was given by (10b) above. Imposing a zero toll and the absence of other traffic calming measures Z, it can be
written as:
b U 2

WU ( f ) = (1 + ρ )XOC − αx + βx (X̄OD − XOD
y,U
) X̄OD + ȲLD − θ T y,U
2
We can write the federal welfare difference after straightforward algebra as:
b
2 2
W R( f ) − WU ( f ) = ( 1 + ρ )2 R
XOC U
− XOC − βx XOD
y,U
X̄OD
2

+ αx + βx (X̄OD − XOD
y,U
) − αy + βy (1 + ρ )XOC
R
+ ȲLD ȲLD
y,U U
+θ XOD + (1 + ρ ) XOC − XOC R

(28)
Note that the Wardrop equilibrium condition holds in the unrestricted situation
y,U
y,U
) = αy + βy XOD + (1 + ρ )XOC
U
+ ȲLD
Use this expression and rearrange the welfare difference (28) to find:
b
2 2
W R( f ) − WU ( f ) = ( 1 + ρ )2 R
XOC U
− XOC
2

−βx XOD
y,U
X̄OD + (βyȲLD + θ ) XOD
y,U
+ (1 + ρ ) XOC
U R
− XOC (29)
To interpret this expression, we first use expressions (6) and (27), giving unrestricted and restricted price sensitive de-
mand, respectively.15 Algebra shows the following:
R
XOC > XOC
U
U (30)
XOD + (1 + ρ ) XOC
y,U
− XOC
R
>0
These findings are intuitive. The first inequality says that non-commuting demand by outsiders from O that have the
local community as final destination rises when through traffic is no longer allowed. The second inequality means that total
demand passing via the local road y will decline when through traffic is no longer allowed: the reduction in through traffic
to zero is larger than the induced extra non-commuting demand.
Then interpret the above welfare difference (29). The first term captures the surplus increase for non-commuting traffic;
it is positive. The second term reflects the fact that restricting access raises congestion on route x; it is negative. The third
term is positive. It gives the reduction in congestion and local external costs when closing the road for through traffic.
It follows that restricting access may increase or reduce federal welfare. If congestion on the main road is severe (the
second term in (29) is large in absolute value) and external costs of passing through the local community are small (the
third term is small), restricting access is reducing welfare. If congestion on the main road is not dramatic but local nuisances
in the municipality are important, the access restriction improves federal welfare.
6.1.2. The local viewpoint

Compare welfare with and without access restriction from the viewpoint of the local authority. Without the restriction
(superscript ‘U’) we have
b1+ρ U 2 U y,U
W U (l ) = (YLC ) − ȲLD GCy − λθ XOD + (1 + ρ )XOC
U
+ ȲLD
2 ρ
where GCyU = αy + βy (XOD + (1 + ρ )XOC
y,U U + Ȳ ). When the access restriction on through traffic is imposed (superscript ‘R’),
LD
welfare becomes
1 + ρ b
W R (l ) = (YLCR )2 − ȲLD GCy − θ (1 + ρ )XOC
R
+ ȲLD
ρ 2
and GCy = αy + βy ( (1 + ρ )XOC
R + Ȳ ).
LD
Comparing local welfare without and with the restriction, we find:
1 + ρ b 2 2
W R (l ) − W U (l ) = R
YLC U
− YLC + (βyȲLD + θ ) XOD
y,U
+ (1 + ρ ) XOC
U R
− XOC (31)
ρ 2
It follows from (30) and YLC = ρ XOC that expression (31) is unambiguously positive. The local authority will always close
the road for through traffic: it ignores the fact that doing so raises congestion on the main road x.
Finally, note that introducing a federal toll on the main road would only reinforce the local government’s incentive to
close the local road for through traffic. The toll would imply more diverted traffic from the main road to the local commu-
nity, strengthening the incentive for the local authority to close the road for through traffic.
Proposition 4. Restricting access to through traffic
15
Of course, we impose τ x = Z = 0 in (6) to reflect our assumptions of a zero toll and no traffic calming except access restrictions.
105
a. From a global welfare perspective it is optimal to keep the local road open for through traffic if congestion on the main road
is severe and traffic nuisances imposed on the local population are limited.
b. Unless implementation costs are high, the local authority will always close the road for through traffic.
c. Leaving authority over traffic restrictions to the local government implies that road access will be denied to through traffic
even when it is socially optimal not to do so.
6.2. A restriction on through traffic for trucks only
We reconsider the issue of restricting access to the local road for through traffic, but now assume that the restriction
only applies to trucks, not to cars. To get as transparent results as possible, we make some strong assumptions. First, as
before, we assume neither tolls nor other traffic calming measures are in place. Second, suppose that there is only truck
traffic from O to D, so there is no truck traffic having the local community as final destination (this would typically not be
restricted, because it consists of local deliveries). The local population will therefore only suffer from trucks diverted from
the main to the local road. As before, let total demand from O to D be fixed, and assume that a constant fraction η of this
demand comes from cars, the remainder consists of trucks16 :
c
X̄OD
c + X̄ t ;
X̄OD = X̄OD OD
η= c +X̄ t
X̄OD
.
OD
The superscripts c,t refer to cars and trucks, respectively. We further assume behavior of cars and trucks is the same in
the sense that, if there are no access restrictions, the share of diverted trucks to the local road is also equal to η:
y,c
XOD
y y,c
XOD = XOD + XOD ;
y,t
η= y,c y,t .
XOD +XOD
If initially there are only trucks (η = 0), then restricting access for trucks brings us back in the case of a full access
restriction of Section 5.1. If there are initially only cars (η = 1), then the ban on trucks has no effect.
A last assumption we make is that a truck diverted though the local community causes more local nuisance than a car.
The total external cost for the local community caused by cars and trucks together is given by:
θc (XOD
y,c
+ (1 + ρ )XOC + ȲLD ) + θt (XOD ), where θ c < θ t .
y,t
Before turning to the welfare comparison let us analyze the effect of the truck access restriction on traffic flows on the
y,t y y,c
network. We haveXOD = 0 or, equivalently, XOD = XOD . The user equilibrium that will allocate traffic flows across the network
is now described by the system:
y
y
) = αy + βy XOD + (1 + ρ )XOC + ȲLD
y
a − b(1 + ρ )XOC = αy + βy XOD + (1 + ρ )XOC + ȲLD
Solving this system yields:
1 + ρ
y,NT
XOD = X̄OD [βx (b + βy )] − ȲLD bβy + b(αx − αy ) − βy (a − αx )

−1
NT
XOC = βx βy (X̄OD + ȲLD ) − βx (a − αy ) − βy (a − αx ) (32)

where the superscript ‘NT’ refers to the case ‘no trucks’, and
= (1 + ρ )[β x b + (b + β x )β y ] > 0.
In the absence of access restrictions, the equilibrium traffic flows (the superscript ‘U’ again refers to the initial situation)
are just given by expressions (6), but taking into account that both the toll and traffic calming were assumed to be zero.
Using these assumptions in (6), we have:
1 + ρ
y,U
XOD = X̄OD [βx (b + βy )] − ȲLD bβy + b(αx − αy ) − βy (a − αx )

−1
U
XOC = βx βy (X̄OD + ȲLD ) − βx (a − αy ) − βy (a − αx ) (32)

Note that total diverted traffic XOD via y consists of fractions η, (1 − η)of cars and trucks, respectively.
y,U
It immediately follows from the right-hand sides of (32) that total traffic on the two routes is exactly the same with and
without the ban on trucks on the local road:
y,U y,NT U NT
XOD = XOD ; XOC = XOC . (33)
Total traffic via x and y therefore do not change due to the truck access restriction. The only effect on traffic flows is that
traffic via y now only consists of cars; trucks all go via the main road. This simple result is a consequence of assuming that
traffic allocation is subject to the Wardrop principle. Of course, if the two roads would be considered imperfect substitutes
by car and truck drivers, the result that traffic levels do not change would not hold.
16
We could express total demand in terms of car equivalents, assuming that a truck counts for more than one car. To keep the analytics simple, we did
not do so. It does not affect the interpretation of the results.
106
Finally, turn to the welfare comparison. In the case of truck access restrictions, federal and local welfare are:
b

NT 2

W NT ( f ) = (1 + ρ )XOC − αx + βx (X̄OD − XOD
y,NT
) X̄OD + ȲLD
2
y,NT
−θc XOD + (1 + ρ )XOC
NT
+ ȲLD (34a)
b 1 + ρ NT 2 y,NT
W NT (l ) = (YLC ) − GCy ȲLD − θc XOD + (1 + ρ )XOC
NT
+ ȲLD (34b)
2 ρ
Note that in the absence of trucks the local externality is only due to cars passing through the local community.
Federal and local welfare in the initial situation without the ban on trucks can be written as, respectively:
b

U 2

WU ( f ) = (1 + ρ )XOC − αx + βx (X̄OD − XOD
y,U
) X̄OD + ȲLD
2
y,U y,U
−θc XOD + (1 + ρ )XOC
U
+ ȲLD − θt XOD (35a)
b1+ρ U 2 y,c y,t

W U (l ) = (YLC ) − GCy ȲLD − θc XOD + (1 + ρ )XOC
U
+ ȲLD − θt XOD (35b)
2 ρ
Total external costs imposed on the local population are now due to both cars and trucks passing via the local road y.
Comparing welfare is easy. Since the traffic levels are unchanged between the initial situation and the situation with a
local ban on trucks (see (33)), subtracting (35a) from (34a) and (35b) from (34b), we find

W NT ( f ) − W U ( f ) = θt XOD
y,t
>0
W NT (l ) − W U (l ) = θt XOD
y,t
>0
The implication is clear. Contrary to what we found when we restricted access to all through traffic via y (see
Proposition 4), we do not see a conflict between local and federal authorities: both will want to impose a ban on through
traffic by trucks. The reason is that both governments do care for traffic externalities imposed upon the local population
and, unlike in the case of a ban on all through traffic, there is no loss in consumer surplus for price-sensitive demand. Do
note that this strong conclusion hinges on crucial assumptions: we ignored implementation costs, and we assumed perfect
substitutability between roads x and y, allowing us to invoke the Wardrop condition.
Proposition 5. Restricting access to through traffic by trucks
a Both the federal and the local government will agree on imposing a ban on trucks through the local community.
b A ban on trucks implies substituting through traffic by trucks by through traffic by cars, reducing external costs.
Although the model used was very stylized, Propositions 4 and 5 together may provide one explanation for two empirical
observations. First, in many countries local governments can only decide on access restrictions unilaterally for very local
roads, so their capacity to handle through traffic is limited. Second, we see more frequent access restrictions for truck traffic
only than restrictions on all through traffic.
7. Numerical illustration
In this section, we provide a numerical illustration using information on the morning commute between Leuven and
Brussels, whereby car users have the option to use the heavily congested highway or another route passing through a
number of local communities. The numerical exercise is a two-link simplification of a more complex network. It is also
not intended to describe actual or planned policies (for example, there is currently no toll on the highway), but rather
to illustrate the working of the model and the interpretation of the results. We analyze the interaction of tolls and traffic
calming measures, we evaluate whether – given the use of traffic calming measures – imposing a toll on the highway
is a good idea, and we look at the implications of not allowing diverted traffic from using the road through the local
communities.
We consider the morning commute between Leuven, a medium-sized city east of Brussels, and the city of Brussels.
Although the area has a dense network of small local roads, the large majority of commuters take one of two major options
between Leuven and Brussels. The first one is the highway, the second one is an alternative road which passes through
several smaller municipalities before reaching Brussels. The trip along the highway is, absent congestion, much faster than
its alternative. Unfortunately, the highway is very congested during the morning peak; average speed during peak hours is
less than 30 kms per hour. Both roads are also used by trucks; this is hardly the case (except for local deliveries) for the
network of smaller streets, where the share of truck traffic during peak hours is negligible.
We normalize the numerical example by focusing on the two-link network in the neighborhood of the municipality of
Kortenberg, which suffers much from traffic passing through its densely populated center. Of course, the local road through
the municipality is used also by much traffic from the surrounding local network of small streets. We use data from the
National Traffic Model that has information on traffic levels at a very small scale; it includes detailed information on traffic
107
Table 3
Traffic volumes in the baseline.
X̄OD 38,091
y
XOD 9142
ȲLD 3343
XOC 2391
YLC 371
y
Total traffic main road (X̄OD − XOD ) 28,949
y
Total traffic local road T y = XOD + XOC + YLC + ȲLD 15,246
Table 4
Traffic calming and access restrictions: comparing equilibria.
Toll on the Toll on the

Traffic highway local road Diverted Total traffic Total traffic
Equilibria calming (Z) (τ x ) (τ y ) GCx GCy traffic highway local road
Local traffic calming 0.602 0 0 3.66 3.66 9142 28,949 15,246

only (baseline)
First-Best 0.317 1.710 1.58 5.24 5.24 11,201 26,890 16,828
Second-Best 0.328 0.147 0 3.68 3.68 11,084 27,007 17,182
Nash Equil. 0.660 0.276 0 3.81 3.81 11,072 27,019 17,130
Formal access 0 0 0 4.24 2.95 0 38,091 6318
restriction for all
through traffic
flows on both the highway and the local network. To fit the example into the framework of a simple two-link model, we
aggregated local traffic levels so that traffic using the local road not only captures users driving from Leuven to Brussels;
it also contains trips by locals heading towards Brussels, trips from the direction of Leuven that have the municipality as
final destination and purely local trips. Traffic on the highway does not necessarily originate in Leuven (it may have its
origin further East), but between Leuven and Brussels all such traffic does have the choice of continuing on the highway or
deviating via the local road to proceed direction Brussels.
In Appendix 4, we provide details on the two-road network studied, we describe how traffic levels were aggregated to
arrive at the data needed for our example, and we provide information on how we calibrated all parameters of the model.
Currently, there is no toll on the highway, and there is no restricted access to pass through the municipality, but there
are several traffic calming measures (such as speed bumps, traffic lights and speed limits) already in place on the local
road. We therefore calibrated the parameters of the model so as to reflect the case where the local authority has optimally
invested in traffic calming Z, and no toll has been imposed on the highway. As a variety of traffic calming measures exist
that substantially vary in terms of costs and effectiveness, and to keep the link between the theoretical model and the
application as close as possible, traffic calming was measured for the purpose of the numerical model by an index (ranging
between 0 and 1, see Appendix 4).
The traffic volumes obtained for the reference situation are given in Table 3. Trucks were taken into account by applying a
car equivalence factor. Note that some 24% (i.e., 9142/38,091) of the total traffic volume coming from the direction of Leuven
and traveling towards Brussels is taking the secondary road. This diverted traffic accounts for almost 60% (viz. 9142/15,246)
of the peak period traffic volume on the secondary road.
To illustrate the working of the model, we calculated five equilibria. As mentioned, the model parameters were cali-
brated assuming the local government optimally implemented traffic calming, given a zero toll on the highway. We further
calculated the first-best optimum (using tolls on the highway and the secondary road, plus traffic calming measures), the
second-best optimum (the federal government implements local traffic calming measures as well as a toll on the highway),
and the Nash equilibrium (the federal government sets the toll on the highway, the local government decides on traffic
calming on the secondary road). Finally, we calculated the results of a policy whereby the local government imposes a for-
mal access restriction on all through traffic via ANPR-cameras; only traffic originating in the local community and traffic
having the municipality as final destination is allowed on the secondary road.
Table 4 summarizes the results for the policy variables (traffic calming and road tolls); it further reports the general-
ized costs and the traffic levels in the various equilibria. Table 5 provides the main welfare effects, relative to the baseline
equilibrium.
Findings are easily summarized. In the baseline equilibrium the local government is the only one that has an instrument
to regulate traffic. It uses intensive traffic calming (Z=0.6) to discourage too much through traffic from using the secondary
road, while taking into account that traffic calming raises congestion for its local inhabitants. There is much less diverted
traffic compared to the other equilibria (except the equilibrium with restricted access to the local road).
The first-best social optimum implies imposing tolls of 1.71 euro and 1.58 euro on the highway and the secondary road,
respectively (or some 25 and 22 eurocents per kilometer). Given the availability of a toll also on the secondary road, traffic
calming is used much less intensively (Z=0.32). First-best policies substantially increase generalized cost, from 3.66 euro
in the baseline to 5.24 euro per trip. There is more diverted traffic compared to the baseline, where the local authority
108
Table 5
Traffic calming and access restrictions: welfare effects.
Local external
nuisance cost
Federal welfare Local welfare relative to the
relative to the relative to the baseline (euros per
Equilibria baseline baseline Toll revenues day)
Local traffic calming only (baseline) 0 0 0 0

First-Best 1631 -1732 94,154 4184
Second-Best 1257 -1759 3971 4251
Nash Equil. -128 -1119 7470 -194
Formal access restriction for all through traffic -14,287 6091 0 193
optimally determined traffic calming, only considering the welfare implications for traffic by local residents. Unsurprisingly,
the first-best generates high toll revenues. Finally, although by definition federal welfare is higher than in the baseline, this
is not the case for local welfare; the local community is better off in the baseline, where it suffers much less from diverted
traffic and the associated nuisance costs.
The second best solution assumes tolling the local road is not feasible. By a standard second-best argument, this forces
the federal government to limit the toll on the highway; if not, we would have a massive use of the local road by through
traffic. The second-best optimal toll amounts to as little as 0.147 euro. The use of traffic calming is just marginally higher
than in first-best. Note also that, although the generalized cost is almost the same as in the baseline, the distribution of
traffic over the network is very different, with much more diverted traffic in second-best. Local citizens are again worse off
compared to the baseline.
The Nash equilibrium implies, in line with the theory, a highway toll above the second-best level as well as more traffic
calming. The very intense use of traffic calming (Z=0.66) implies much lower local nuisance costs and higher local welfare
than in the second-best optimum. Comparing the Nash equilibrium results with the baseline, we observe that the former
is slightly less efficient. As explained in Section 5, one interpretation is that because of the use of traffic calming by the
local authority, it is (marginally in the numerical example) welfare-reducing to impose a toll on the highway. Both federal
and local welfare are lower in the Nash equilbrium, due to the use of a very high level of traffic calming in reaction to the
imposition of the federal toll.
Finally, the formal access restriction on all through traffic implies that the Wardrop condition does not hold; the gener-
alized cost on the highway (4.24) is much higher than on the secondary road (2.95). This policy leads to low traffic on the
secondary road but high congestion on the highway. Unsurprisingly, this is highly beneficial for the local authority, but it
is unjustified from a federal perspective: federal welfare drastically declines relative to the baseline, local welfare is much
higher. Interpretation is clear: although it is socially optimal to keep the road open for through traffic, if it had the authority
the local government would close the road for through traffic.
As explained in Appendix 4, we made a large number of strong assumptions to calibrate all required parameters of the
model. The above exercise can therefore not be considered as anything more than a numerical illustration of the theoretical
findings. To see how the model responds to changes in parameters, we further performed a series of sensitivity analyses.
Reassuringly, variations in some of the key parameters showed results perfectly in line with expectations. For example,
raising the cost of traffic calming (raising c) reduces investment in such policies under all scenarios. Similarly, increasing
the speed-reducing effect of traffic calming (increasing δ ) makes the use of such measures less attractive. Imposing higher
costs of traffic nuisances on the local community (higher values for θ ) increased Z in all equilibria. Lastly, as mentioned in
the theory above, when the cost of traffic nuisances is small (θ small) relative to the extra congestion due to traffic calming
(δ large) the first- and second-best policies do not involve any traffic calming at all, under those conditions we found Z=0.
8. Conclusions and suggestions for further research
We studied the problems caused by diverted traffic trying to avoid congestion on major motorways within the setting
of a municipality located parallel to a congested motorway. Diverted traffic causes local accident risks, congestion and other
nuisances in the municipality. We assumed that a ‘federal’ government controls traffic levels on the motorway using tolls,
whereas a local government controls local accident risks and congestion using non-price measures such as speed bumps,
traffic lights and explicit access restrictions for through traffic. We showed that vertical competition between the two gov-
ernments implies tolls and traffic calming measures that are both too high compared to the second-best social optimum.
Moreover, given intensive use of local traffic calming measures by local governments, we found that it may not be a good
idea for the federal government to toll the main road: unless congestion on the main road is severe and accident risks for
the population of the small town are very low, imposing a toll on the main road is in fact welfare-reducing. We further
showed that the existence of diverted traffic from the main road to the local community gives the latter strong incentives
to close the local road for through traffic, even when it is socially undesirable to do so. In this sense, granting author-
ity over local traffic calming measures to local governments may be socially undesirable. If the restriction only applies to
through traffic by trucks, the conflict between federal and local authorities disappears: both will agree on prohibiting access
109
to trucks, unless they have the local town as final destination. A numerical application using a two-link network between
Leuven and Brussels (the highway and an alternative road passing through local communities) was used to illustrate the
theoretical results.
Of course, the network studied in this paper was very simple; moreover, we deliberately focused on very specific policy
questions. Before concluding we therefore highlight a few obvious limitations and discuss possible extensions.
First, we assumed that car traffic diverted from the main road to the local municipality imposed a number of nuisances
on the local population, but the behavior of the local population was not modeled at all. For example, the externality could
involve accident risks imposed upon bikers and pedestrians on the municipal road, but their adaptive behavior was not
modelled. Moreover, we ignored possible long-run effects by implicitly assuming that the affected population was fixed.
Second, we can easily extend the network with a second road parallel to the main highway. This is quite common in
reality, in the sense that municipalities typically develop on both sides of the highway. We explored this extension in a
previous version of this paper. Confirming Proost and Westin (2017), we found that now both local governments will put
too many speed bumps or traffic lights as compared to the social optimum. Moreover, traffic calming on both local roads is
positively affected by the toll on the main road, so traffic calming will be used even more intensively than in the setting of
this paper with just two parallel roads.
Third, we could use the model to study an extreme case of access restrictions, viz., car-free zones within municipali-
ties. This would imply the restriction that neither diverted through traffic nor traffic that has the local community as final
y
destination can pass though the local community; we haveXOD = XOC = YLC = ȲLD = 0. Of course, this would require the intro-
duction of extra transport options so as to allow this traffic to reach their destinations (bike paths, public transport, bypass
roads avoiding the local community, etc.), complicating the technical analysis. In the simplest possible setting, one could
assume that for each type of traffic there is an alternative available at a cost that exceeds the generalized cost of using
the local road y. We then easily show that the same principles that drive the results of the current paper also apply to
car-free zones. Most importantly, the federal government is generally less inclined to impose such car-free zones than the
local government. From a federal welfare perspective, we will therefore have too many car-free zones.
Lastly, the model can be extended to allow for public transport. This, however, would also not fundamentally change
the main results from the analysis. For example, suppose a public transport line exists between O and D. Depending on
how public transit is priced (and this may depend on whether it is operated by the federal authority or by an independent
agency), it will affect congestion on the main road. But, although it may make the problem less severe, public transport
availability would not resolve the traffic diversion problem faced by the local authority. Qualitatively, all relevant implications
we derived will continue to hold.
Contribution
Secondary roads often suffer from diverted traffic trying to avoid congestion on main roads. This results in local govern-
ments using excessive traffic calming and ANPR cameras restricting the use of local roads to local traffic. This paper is one
of the first to study this conflict among government levels in a general setting and shows when traffic calming measures
and access restrictions become excessive. The theory is illustrated with a numerical illustration.
Acknowledgment
We are grateful to the Flemish Fund for Scientific Research for financial support, and to three referees and the editor for
many insightful comments. Chau Man Fung provided excellent research assistance in developing the numerical example.
Appendix 1. Determining the slope of the local government’s reaction function
Write (15) as an implicit function ϕ (Z, τ x )=0:

∂Ty
φ (Z, τx ) = − (βy + δ Z )(YLC + ȲLD ) + θ (1 − γ Z ) + θγ Ty
∂Z
−cZ − δ T y (YLC + ȲLD ) = 0 (A1.1)
Differentiating we have:

∂φ (Z, τx )
∂ 2T y
= − (βy + δ Z )(YLC + ȲLD ) + θ (1 − γ Z )
∂ τx ∂ Z ∂ τx
y
∂T ∂ YLC
− (βy + δ Z ) + δT y
∂Z ∂ τx

∂T y
− δ (YLC + ȲLD ) − θ γ (A1.2)
∂ τx
110
To show that this is unambiguously positive, first note that (A1.1) implies:

1 ∂Ty
−δ (YLC + ȲLD ) + θ γ = [Q ] + cZ (A1.3)
Ty ∂Z
where

[Q ] = (βy + δ Z )(YLC + ȲLD ) + θ (1 − γ Z ) . (A1.4)

Then use (A1.3)-(A1.4) and simple rearrangements to rewrite (A1.2) as:
2 y
∂φ (Z, τx ) ∂ T 1 ∂Ty ∂Ty
= −[Q ] − y
∂ τx ∂ Z ∂ τx T ∂ τx ∂ Z
y
∂T y ∂ YLC 1 ∂Ty
− (βy + δ Z ) + δT + cZ y (A1.5)
∂Z ∂ τx T ∂ τx
Algebra shows that the first term between the brackets equals zero. To see this, differentiate (7) and use (7) and (9) to
find:

∂ 2T y 1 ∂Ty ∂Ty (1 + ρ ) δ b(b + βx )
2
1 ( 1 + ρ )b ( 1 + ρ )
2
δ
− =− + y [(b + βx )(H )]
∂ Z ∂ τx T y ∂ τx ∂ Z 2 T 2
ρ
(H ). Substituting this result and working out yields:
Next use (5), (6) and (8) to get T y = 1+

∂ 2T y 1 ∂Ty ∂Ty
− =0 (A1.6)
∂ Z ∂ τx T y ∂ τx ∂ Z
Finally, substitute (A1.6) in (A1.5):
y
∂φ (Z, τx ) ∂T ∂ YLC 1 ∂Ty
= − (βy + δ Z ) + δT y + cZ y
∂ τx ∂Z ∂ τx T ∂ τx
This is necessarily positive (see (9) and (22)).
Appendix 2. Determining the slope of the federal government’s reaction function
Write (17) as an implicit function φ (Z, τ x )=0:

∂ XOD
y
ϕ (Z, τx ) = τx − βx (X̄OD − XOD
y
)
∂ τx
y
∂T
+ [(βy + δ Z )(T ) + θ (1 − γ Z )]
y
=0 (A2.1)
∂ τx
This implicitly defines the federal government’s reaction function τxr (Z ). We calculate the effect of traffic calming by the
local community on the federal toll as:
∂ϕ (Z,τx )
dτxr (Z ) ∂Z
dZ
=− ∂ϕ (Z,τx ) .
∂ τx
By the second-order condition of the federal government’s optimization problem we have ∂ϕ∂τ
(Z,τx )
> 0 (note that
x
∂ϕ (Z,τx )
ϕ (Z, τx ) = − ∂∂Wτx , hence = − ∂ W2 > 0).
f 2 f
∂τx ∂τx
The numerator can be written as:
∂ϕ (Z, τx ) ∂ 2 XOD
y
∂ X y ∂ XOD y
= τx − βx (X̄OD − XODy
) + βx OD
∂Z ∂ τx ∂ Z ∂ τx ∂ Z
y y
∂T ∂T
+ δ (T y ) + (βy + δ Z ) − θγ
∂Z ∂ τx
2 y
∂ T
+[(βy + δ Z )(T y ) + θ (1 − γ Z )] (A2.2)
∂ τx ∂ Z
Using (A2.1), we reformulate this equation as:
∂Ty

∂ϕ (Z, τx ) ∂ 2T y ∂ τx ∂ XOD
2 y
= {[(βy + δ Z )(T ) + θ (1 − γ Z )]}
y
− y
∂Z ∂ τx ∂ Z ∂ XOD ∂ τx ∂ Z
∂ τx

∂ X y ∂ XOD
y
∂Ty ∂Ty ∂Ty
+βx OD + δ (T y ) + (βy + δ Z ) − θγ (A2.3)
∂ τx ∂ Z ∂ Z ∂ τx ∂ τx
111
We can show that this expression will always be negative. To do so, we first use (7), (8), and (9) to find:

∂T y
∂ 2 XOD
y 1 + ρ 2 δ b3
∂ τx
=−
∂ XOD
y
∂ τx ∂ Z b + βy + δ z
∂ τx
∂ 2T y 1 + ρ 2
=− δ b(b + βx )
∂ τx ∂ Z
These results and simple algebra then immediately show:
∂T y

∂ 2T y ∂ τx ∂ 2 XOD
y
− <0
∂ τx ∂ Z ∂ XOD
y
∂ τx ∂ Z
∂ τx
Next, we have (see (7), (9) and (22):
∂ XOD
y
∂ XOD
y 1 + ρ 3
=− δ b(b + βy + δ z )(H )
∂ τx ∂ Z
y
∂T 1+ρ 2
δ (T y ) + (βy + δ Z ) = δ bβx (H )
∂Z
Using these results we can easily show:

∂ XOD
y
∂ XOD
y
∂Ty ∂Ty
βx + δ (T ) + (βy + δ Z )
y
<0
∂ τx ∂ Z ∂ Z ∂ τx
Putting all these results together in (A2.3) we have
∂ϕ (Z,τx )
∂Z < 0.
Appendix 3. Proofs of (26)
To show (26), first note that the isogeneralized cost lines on road y in (τ x ,Z)-space have a negative slope. To see this note
that:

∂Ty ∂Ty
dGCy = d (αy + (βy + δ Z )T y ) = (βy + δ Z ) dτx + δ T y + (βy + δ Z ) dZ = 0
∂ τx ∂Z
Hence:

δ T y + (βy + δ Z ) ∂∂TZ
y
d τx
=−
<0
(βy + δ Z ) ∂∂Tτx
y
dZ
The generalized cost rises further from the origin. Jointly these observations imply that the generalized cost is necessarily
higher at the Nash equilibrium than in the case ‘traffic calming only’: GCNE > GC1 .
Further note that in equilibrium we must have:
a − b(1 + ρ )XOC = GCy
The right hand side is higher at the Nash equilibrium than with traffic calming only. This must imply that we have
NE < X 1 .
XOC OC
Moreover, the higher generalized costs at the Nash equilibrium imply:
β y (1 − γ ZNE )Ty,NE > β y (1 − γ Z1 )Ty,0 .
Noting that ZNE > Z1 this in turn implies Ty,NE > Ty,1 . Using the definitions of the total traffic flow via road y, this together
with XOCNE < X 1 necessarily implies that
OC
y,NE y,1
XOD > XOD .
Appendix 4. Data and calibration of the numerical example
We considered a two-link network between Leuven and Brussels. We normalized the numerical example by focusing on
a short section of the small network in the neighborhood of the municipality of Kortenberg. Some summary information
is given in Table A4.1. The value of time to calculate the costs at free flowing traffic was set at 0.16 euro per minute. The
monetary cost per kilometer was determined at 0.18 euro.
In the remainder of this appendix, we provide details on the traffic flows, the model parameters and the calibration of
the baseline equilibrium. Note that calibration of the model is complicated because in practice a variety of traffic calming
instruments is used (speed bumps, traffic lights, pedestrian bridges, speed controls, ….). These instruments widely differ in
112
Table A4.1
Summary information on the two-link network.
Highway Local road
Length (km) 7 7
Max speed (km/h) 120 50
Free flow trip time (minutes) 3.5 8.4
Money cost of trip (euro) 1.26 1.26
Total trip cost free flow (euro) 1.82 2.60
Generalized cost baseline 3.66 3.66
implementation cost, they have very different effects on congestion on the local road, and they need not have the same
effect on nuisance reduction for the local population. For these reasons, we did not define Z so as to represent units of
a particular traffic calming measure, but rather defined Z as an index, ranging between zero and one. Of course, this also
implies that we do not have an observed value for Z in the current equilibrium. As in the current situation there is no
highway toll but there are several traffic calming measures on the secondary road through the municipality, we therefore
calibrate the model assuming that the baseline equilibrium is the solution of the model when the local authority optimally
decides on traffic calming Z.
Traffic levels
The National Traffic Model distinguishes very narrowly defined zones, and it captures all traffic levels between zones. To
calculate the traffic levels in the baseline we proceeded as follows.
First, we have direct information on traffic levels on the highway from the direction of Leuven to Brussels from the traffic
model; this includes both cars (18,641 trips) and trucks (3436 trips). For trucks we used an equivalence factor of one truck
y
for three cars. Using this information we obtained our estimate of (X̄OD − XOD ) in the notation of the theoretical model. We
y
found X̄OD − XOD =28,949.
Second, we aggregated a number of zones of the traffic model to define the local municipality (Kortenberg). Our estimate
of XOC is obtained by considering all trips coming from direction Leuven that have the zone Kortenberg as final destination,
not counting the trips having both origin and destination in the latter zone, and also excluding trips with origins and
destinations at the edges of the zone (i.e., trips that clearly do not use the secondary road between Leuven and Brussels). We
ended up with XOC = 2391. Our estimate of YLC was obtained by taking all the trips within the aggregated zone Kortenberg,
excluding again trips with origins and destinations suggesting they do not use the road we took into account in the model.
We found 371 as our estimate of YLC .
Third, although detailed count data are available for traffic levels on the highway and the local aggregate road, what
y
is not directly observable is the number of vehicles XOD that are driving from Leuven to Brussels and that pass though the
y
local municipality. We approximated XOD in two different ways. First, we sum up all incoming flows from direction Leuven
getting into Kortenberg; this number will also include the ones that have Kortenberg as destination, or those that we are
not studying (some traffic going into Kortenberg gets out after travelling just a very short distance in Kortenberg; this traffic
is ignored, it does not travel direction Brussels). Deleting these flows from the incoming flows into Kortenberg, yielded a
first crude estimate of 7678. Second, one can also approximate through traffic using the outflow. We sum up the traffic
leaving Kortenberg direction Brussels, but this number will also include the ones that have Kortenberg as origin, or those
that we are not studying for the same reason as above. Correcting our initial count we get 9951. Unsurprisingly, the two
y
approximations for XOD are not equal. We therefore took the average, to find 8815. Finally, we accounted for the trucks
counted on the local road (109) and applied the car-equivalence factor. Adding the correction term for trucks gives finally
y
XOD = 9142.
Finally, traffic by locals towards Brussels (ȲLD ) was estimated by considering all trips that originate in the Kortenberg
zone traveling direction Brussels, deleting those that clearly did not use the main secondary road through the municipality.
We arrived at ȲLD = 3343.
y y
Using the definitions X̄OD − XOD and T y = XOD + XOC + YLC + ȲLD , respectively, we can then obtain the estimates of X̄OD and
Ty . The results of the traffic calculations are summarized in Table 3 in the main body of the paper.
Demand and generalized costs functions
To calibrate the inverse demand function, we assumed a price elasticity for price-responsive traffic of (-0.4). The initial
traffic volumes are then used to calibrate the parameters a and b of the linear demand function. The α x ,α y (the generalized
costs of the two alternative roads at free-flow traffic) directly follow from our assumptions about the value of time (0.16
euro per minute) and the free-flow speeds and distances of the two links, see Table A4.1 above. Using the observed speed
on the highway, the monetary cost per kilometer (0.18), the value of time (0.16 per minute), and the length of the section
considered (7 km), the baseline generalized cost via the highway can then be calculated. It was found to equal 3.66 euro.
113
Table A4.2
Parameters for the numerical example.
Inverse demand function Parameter value
Demand elasticity -0.4

a (intercept inverse demand function) 12.81
b (slope inverse demand function) 0.003313
External accident and nuisance cost
θ (expressed per car-equivalent trip) 0.770959 euro
Effectiveness traffic calming
γ 1
Generalized cost functions
Value of time 0.16 euro per minute
βx 0.00006356
βy 0.00005525
αx 1.820
αy 2.604
δ 0.00002328
Cost parameter traffic calming
c 20,134
By solving the reference equilibrium conditions

y
αx + βx X̄OD − XOD
y
= αy + (βy + δ Z XOD + (1 + ρ )XOC + ȲLD = 3.66,
we then determined β x and an estimate of the baseline value of (β y + δ Z).The value of Z in the baseline equilibrium is the
one that solves the first-order condition of the problem considered by the local authority (expression (20), as mentioned
above. The parameters β y and δ were then implicitly determined by assuming, based on some casual observations comparing
road sections with and without traffic calming, that in the baseline equilibrium traffic calming increased the slope of the
congestion function by 20% (so that β δ+Zδ Z = 0.2).
y
Local external accident and other nuisance costs
Traffic through the local community generates costs of accident risks and other nuisances for the local population. These
costs depend on the number of people (for example, pedestrians and bikers) potentially affected by the presence of an extra
car through the local zone. Not surprisingly, therefore, the parameter θ cannot be defined within a very narrow range.
We initially approximated the external nuisance cost parameter θ by considering the official external accident costs for
Belgium, as given in the EU’s Handbook of External Costs (Table 12), but this did not give reasonable values for the calibrated
traffic calming measure Z in the reference equilibrium.17 However, empirical evidence suggests that the nuisances of high
traffic volumes capture more than the objective accident (and pollution) costs. Crude estimates of this nuisance cost can be
obtained from housing price data. For example, Ossokina and Verweij (2015), Poloni (2019) and other authors found that
high traffic volumes significantly reduce housing prices of nearby properties. Their estimates in fact suggest that the per-
ceived nuisance of traffic to nearby residents is much higher than the cost associated with the objective increased accident
risks just mentioned. Using an elasticity of rents with respect to traffic volume of -0.02 (as in Ossokina and Verweij (2015)),
average monthly rents of 400 euro, and a crude estimate of the number of housing units affected we obtained a nuisance
cost θ = 0.771.
Information on traffic calming
A variety of traffic calming instruments is used (speed bumps, traffic lights, pedestrian bridges, speed controls, ….).
Rather than focusing on particular measures we defined Z as an index, ranging between zero and one. Specifically, as the
units of Z are undefined (except that (1 − γ Z) ≥ 0) we set, rather arbitrarily, γ = 1. Restricting the range between 0 and
1 has the advantage that we can interpret Z directly as the level of traffic calming that implies a particular percentage
reduction in the nuisance costs imposed on the population.
The investment and operational costs of traffic calming measures obviously strongly vary according to the type of mea-
sure used. Several government organizations report costs of traffic calming measures, both in the US (USDOT-FHA, Institute
of Transportation Engineers), and the UK (see for example www.cornwall.gov.uk, www.wilmapco.org.). For example, depend-
ing on their height and other characteristics, a typical speed bump may cost between 40 0 0 and 10,0 0 0 euro per unit. Traffic
lights may cost between 50,0 0 0 and 250,0 0 0 euro, plus an annual operation and maintenance cost of several thousands of
17
Estimates per vehicle-kilometer on urban roads in Belgium range between 0.03 (for cars) and 0.06 euro (for motorcycles). Given the 7km road section
we consider this puts the external accident cost at some 0.21 euro per trip for cars. Using values in this range for θ often produced negative Z-values in
the baseline equilibrium, inconsistent with empirical observations.
114
euros. Pedestrian crossings in the UK cost between 20,0 0 0 and 50,0 0 0 pounds. Greenway investments (i.e., investments in
bike and pedestrian paths to make the neighborhood safer) reportedly cost some 250,0 0 0$ per mile (Poloni (2019)).
Given the huge variability in costs and not having good information on all the traffic calming measures used, we made
a strong assumption to determine the cost parameter c of the traffic calming cost function. We assumed a 20% nuisance
reduction, equivalent to placing the equivalent of ten traffic lights on the 7 km road section through the municipality, and
we took into account both the discounted investment cost as well as the operational cost. Moreover, we added those costs
from the annual budget report of the Kortenberg municipality that could be related to traffic calming operations (including
a fraction of police traffic control expenses). All annual costs where then divided by 365 to arrive at a figure per day. Finally,
this resulting cost K per day was then used to solve the cost function for c.
We summarize parameter values used in the numerical illustration in Table A4.2.
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Transportation Research Part B 147 (2021) 92–115

Contents lists available at ScienceDirect

Transportation Research Part B

Road tolls, diverted traﬃc and local traﬃc calming measures:

2. Non-price measures to control traﬃc externalities: a summary review of the literature

Fig. 1. Structure of the network.

Type of traﬃc Notation Remarks

Commuting from O to D (outsiders) X̄OD Fixed

3. Model description: demand, costs and user equilibrium

YLC = ρ XOC (1)

P = a − b(XOC + YLC ) = a − b(1 + ρ )XOC . (2)

GCx = αx + βx (X̄OD − XOD

Effect on local Reduction in local Implementation cost for

Speed limit High Medium Low

Selective access restrictions for Reduction in local Implementation cost for

No through traﬃc High High Low

−0.5cZ 2 − (θ (1 − γ Z ) )(T y ) (10a)

Straightforward algebra shows that it can be rewritten as:

4. The ﬁrst- and second-best social optima

4.1. The ﬁrst-best

τy = (βy + δ Z )(T y ) + θ (1 − γ Z ) (13b)

4.2. The second-best social optimum

ﬁrst use (5) to rewrite it as

(τx − βx (X̄OD − XOD ) + (βy + δ Z )(T y ) + θ (1 − γ Z )) > 0.

Using this result, we can ﬁnally rewrite ﬁrst-order condition (14b) as

Proposition 1. The ﬁrst- and second-best solutions

5. Vertical competition: tolls, traﬃc diversion and local traﬃc calming

5.1. The local government’s problem: how much traﬃc calming?

5.2. Traﬃc calming and the federal toll

5.3. The Nash equilibrium

5.4. Is a toll on the motorway welfare-improving?

Proposition 3. The allocation of decision authority.

6. Formal access restrictions

6.1. No through traﬃc allowed on the local road

6.1.1. The federal point of view

W R( f ) = (1 + ρ )XOC − αx + βx X̄OD X̄OD − αy + βy (1 + ρ )XOC

+θ XOD + (1 + ρ ) XOC − XOC R

6.1.2. The local viewpoint

Proposition 4. Restricting access to through traﬃc

6.2. A restriction on through traﬃc for trucks only

b1+ρ U 2 y,c y,t

Proposition 5. Restricting access to through traﬃc by trucks

Toll on the Toll on the

Local traﬃc calming 0.602 0 0 3.66 3.66 9142 28,949 15,246

Local traﬃc calming only (baseline) 0 0 0 0

8. Conclusions and suggestions for further research

Appendix 1. Determining the slope of the local government’s reaction function

Write (15) as an implicit function ϕ (Z, τ x )=0:

[Q ] = (βy + δ Z )(YLC + ȲLD ) + θ (1 − γ Z ) . (A1.4)

Appendix 2. Determining the slope of the federal government’s reaction function

Write (17) as an implicit function φ (Z, τ x )=0:

Appendix 3. Proofs of (26)

Appendix 4. Data and calibration of the numerical example

Highway Local road

Demand and generalized costs functions

Inverse demand function Parameter value

Demand elasticity -0.4

By solving the reference equilibrium conditions

Local external accident and other nuisance costs

Information on traﬃc calming

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