A practical approach for curbing congestion and air pollution: Driving restrictions with toll and vintage exemptions

Congestion and local air pollution continue to be a serious problem in many cities around the world, partly because of an increasing and ageing car fleet. Unfortunately, the use of pricing schemes for handling these externalities, such as congestion and pollution charges, still face much resistance. To cope with it, Carlos F. Daganzo advanced an ingenious hybrid scheme that supposedly leaves everybody better off: driving restrictions with toll exemptions. We extend Daganzo's idea to include vintage exemptions in an effort to also control for the pollution externality. We then test for its Pareto-improving property using Santiago as a case study. We find the latter not to hold in that low-income drivers are strictly worse off: the gain from faster car travel in days of no restriction is not enough to compensate the loss from switching to public transport in days of restriction. To make all individuals better off, the entire toll collection ought to be recycled back into the public transport system, lowering its fares and improving its quality. If so, the most ambitious hybrid restriction format -a 5-day-a-week restriction with vintage thresholds during fall and winter- reports per-year net benefits of around 1.2 billion dollars (or 0.5% of the country's GDP), 58% of which comes from lighter traffic and the remaining 42% from cleaner air.