Variable Toll Road Rates

This past summer, I worked for a firm that serves as a financial advisor to government agencies needing to issue debt to fund capital improvement projects. One of their clients is the Central Texas Regional Mobility Authority, an agency responsible for transportation infrastructure. I sat in on one meeting regarding this initiative: variable rate toll roads to manage congestion on 183 North in Austin, TX. The toll rates will be higher during times of peak traffic and lower during non-peak periods. Economists would call this “peak load pricing.” 

This is also an attempt to correct for a negative consumption externality. Consider each driver "consuming" 183 North individually. During non-peak periods, one driver hardly affects another. However, each additional vehicle imposes an external cost on the other drivers by increasing congestion (thereby increasing every driver's travel time, discomfort, frustration, etc.). With this external cost, social marginal benefit is lower than private marginal benefit, and there is overconsumption. With the variable toll rates, drivers will internalize the cost of the congestion they create by taking 183 North. As the rates increase, each driver's private marginal benefit will fall, resulting in "allocatively efficient" consumption.