The objective of this simulation is to devise a package of measures that will reduce the level of road congestion in London, UK.

The policy measures at your disposal include changing market price signals, changing road and public transport provision and the use of regulations and legislation.

Your policies are assessed in terms of the effect on the number of passengers and vehicle miles per year and the changes in the revenues and costs of different modes of transport.

For the most current information on London's transport issues visit London Transport.

Central London suffers from significant road congestion. Each morning the equivalent of 25 busy motorway lanes of traffic (more than 40 000 vehicles an hour) cram onto roads in central London.

These facts help illustrate the problem;

• More than one million people enter central London by all forms of transport every morning
• Drivers in central London can now expect to spend around one third of their journey time at a complete standstill, and travelling at less than 10 mph for another 50% of their journey
• Some roads entering central London now carry as much traffic as UK motorways, for instance, the Brompton Road carries 63,600 vehicles a day - nearly as many as the M5 and more than the M11 and M8

Traffic congestion is a problem. It is not only a problem for the motorist but also for the immediate environment of the place where it occurs. For instance, congested streets and increased air/noise pollution lead to environmental damage.

Traffic congestion is an example of market failure, where demand by the consumer for road space is in excess of the supply of road space from the government. The market failure arises because there are external costs that arise (as well as the private costs) which are not taken into account by users. These additional external costs mean that the social cost of driving is in excess of the private cost.

This figure illustrates that the level of traffic (road) use is continuing to increase in the UK. It is evident that by the end of the 1990s the level of traffic was equivalent to 450 billion km.

The determinants of demand for road space are associated with increased car ownership and the use of transport. The demand for road space is a derived demand with respect to car ownership. Therefore, if you wish to reduce the level of congestion then the determinants of car ownership may also need to be tackled. For instance;

• The price of using a car
• Income levels
• The price of substitutes
• The price of complements
• Tastes / utility

The supply of road space tends to be fixed in the short run but variable in the long run. This is due to government in the longer term being able to build new roads or improve the existing ones. Supply measures will also include measures that enable an increased traffic flow through the existing roads. This may include better traffic management, variable speed limits or other similar strategies.

The issue of a socially efficient level of road usage is associated with consumption (demand) problems given the short run demand and supply conditions.

There are high marginal social costs associated with congestion that are paid by the driver and therefore the actual and social optimum levels of road usage do not equate. These costs are illustrated in the diagram below.

Society would prefer a lower quantity than the present market provision. The highlighted area represents the size of the negative externality.

The solution to this problem involves shifting the position of the curves. This can be achieved through using 3 broad strategies.

1. Direct provision (supply side solution)

• increase road space
• increase provision of public transport

2. Regulation and Legislation (demand side solution)

• restricting car access
• parking restrictions

3. Changing market signals (demand side solutions)

• use of taxation
• road pricing
• subsidising alternatives

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