UC Irvine Institute of Transportation Studies

Congestion can be caused by through-traffic and by traffic destined for the area where consumers park. It may appear that congestion should be reduced by increasing the price of parking. This paper shows that if road usage is suboptimally priced, then a lump-sum parking fee can increase welfare, but a parking fee per unit time does not. Indeed, an increase in the price of parking induces each person to park for a shorter time, allows more persons to use parking spaces each day, and can thereby increase traffic. For the same reason, consumers may prefer that parking not be free.