The optimal pricing, finance and supply of urban transportation in general equilibrium: A theoretical exposition

We present a general equilibrium framework of optimal allocation treating the pricing, finance and supply of urban transportation. Uncongested public transportation technology with economies of scale supports the city's existence; and a congested road system subject to constant returns limits urban size. Optimal investment in public transit and in roads follow Samuelson's rule. With optimally determined urban population, roads are fully financed by Pigouvian congestion tolls while aggregate differential land rents fully finance public transit and any other activity with internal or external economies of scale (Henry George Theorem). Marshallian agglomeration from production in the core and the suburbanization of jobs to avoid congestion are treated. We also see how the optimal rules and the Henry George Theorem are modified when the demand for location is determined by a random utility model.

► Optimal allocation of roads and public transit in urban general equilibrium. ► Congestion pricing, land rent surplus and redistribution for optimal allocation. ► The Samuelson rule and Henry George Theorem: how they apply to roads and to public transportation. ► Idiosyncratic taste heterogeneity and the optimal finance rules.