Futures Market for Demand Responsive Travel Pricing

Abstract

While transportation funding can be collected in a variety of direct (e.g., fares, tolls, and gas taxes) or indirect (e.g., property and sales tax) ways, dynamic demand responsive pricing not only collects revenue but also incentivizes travelers to avoid peak-demand periods, thus utilizing infrastructure capacity more efficiently. Unfortunately, the demand response to price changes, called the price elasticity of demand, is generally greater for longer-term travel planning (e.g., air and rail travel) than it is for more atomized short-term planning (e.g., highway tolls and transit fares). While this is caused by a plethora of factors (e.g., time flexibility, housing choice, automobile investment, etc.), a critical factor is that travelers simply lack sufficient information for future travel planning. For example, airline prices at different times can easily be compared, but a highway driver cannot accurately predict congestion nor congestion pricing. For this reason, such price changes have little effect on demand. This leaves any congestion abatement up to inefficient trial and error, and anecdotal speculation by travelers. Moreover, dynamic pricing is politically unsavory because of price uncertainty and collateral equity concerns. This article seeks to help remedy these concerns by proposing a simple “futures” market mechanism that can augment existing fare/toll collection technologies, providing travelers with sufficient pricing information and purchasing options to preplan their travel and avoid excessive prices. Users can optionally pre-pay their future fares/tolls to lock in a lower price for expected trips, thus encouraging good travel planning and efficient infrastructure utilization, while reducing price uncertainty.