The dynamics of urban traffic congestion and the price of parking

•A parking fee at the workplace can reduce traffic congestion through trip retiming.•An optimal parking fee rate is zero at times when there is queuing.•The optimal parking fee rate eliminates queuing at times when it is non-zero.•The efficiency gain may be realized in the presence of private parking.•Parking fees during morning and evening commutes can combine to remove congestion.

We consider commuting in a congested urban area. While an efficient time-varying toll may eliminate queuing, a toll may not be politically feasible. We study the benefit of a substitute: a parking fee at the workplace. An optimal time-varying parking fee is charged at zero rate when there is queuing and eliminates queuing when the rate is non-zero. Within certain limits, inability to charge some drivers for parking does not reduce the potential welfare gain. Drivers who cannot be charged travel when there is queuing. In some cases, interaction between morning and evening commutes can be exploited to remove queuing completely.