Minnesota Pay-as-You-Drive Pricing Experiment

Abstract

The Minnesota Department of Transportation carried out a pay-as-you-drive demonstration simulating the replacement of the fixed costs of vehicle ownership and operation with variable costs that gave drivers explicit price signals about travel decisions and alternatives. The objective was to estimate the reduction in mileage due to the mileage-based pricing scheme. The study consisted of market assessment surveys and a field experiment. The experiment is the focus of this paper. The experimental design divided participants into three groups: a control-only group, a treatment-then-control group, and a control-then-treatment group. Participants in the treatment phase were subjected to per-mile prices, and the mileage of all participants was recorded for the entire study duration. Two types of analyses were conducted. Aggregate analyses using bootstrap methods to determine groupwise changes in mileage showed that participants reduced their mileage when charged on a per-mile basis, with the greatest reduction during the summer period when trips could be more discretionary in nature. In addition, to understand better the variance in mileage sensitivity to per-mile prices, disaggregate analyses were performed by using a matching method that matched members of the treatment group to those of the control group based on the probability of participation in the experiment and their baseline mileage. The resulting percentage change in mileage was regressed against the percentage change in price and lifestyle variables. The price elasticity of peak-period mileage was found to be negative. However, in both aggregate and disaggregate analyses, the price effect was statistically insignificant as a result of the small sample size.