Congestion Pricing? Economics, Theory, Reality

with @mostrovs @skominers @rhhackett

Welcome to web3 with a16z. I’m your host Robert Hackett, and today we’re talking about congestion pricing — an area of mechanism design that’s aimed at alleviating something everyone hates: traffic.

Now you may have heard this term recently since New York adopted its own version of congestion pricing at the beginning of the year. This is the first program of its kind in the U.S. — and it’s got supporters and detractors. We’ll talk about that, and we’re also going to talk about much more. 

In the first part of today’s episode we’ll trace the history of the economic ideas that got us here. In the middle, we’ll dig deeper into the details of putting congestion pricing into practice, plus technological alternatives. And in the final part, we’ll explore parallels to — and implications for — crypto networks.

Our guests are Michael Ostrovsky, a Stanford Economics Professor who specializes in this area and who has done research on congestion pricing in New York. We’re also joined by a16z crypto Research Partner Scott Kominers, who is a Professor of Business Administration at Harvard Business School where he teaches market design and entrepreneurship.

Timestamps:

(0:00) introduction

(1:51) NYC proposal history

(3:38) economic theory of congestion pricing

(9:15) implementation: challenges and solutions

(26:00) technological alternatives and drones

(29:49) overnight delivery and other possibilities

(35:20) carpooling and how to encourage it

(39:34) congestion pricing and crypto

(47:59) lessons for blockchains

Resources:

• Michael Ostrovsky's paper on congestion pricing in New York City (from before the launch, foreseeing its issues): https://web.stanford.edu/~ost/papers/nyc.pdf
• Michael Ostrovsky's thread that went viral on X shortly after the debut of congestion pricing in New York, discussing the post-launch evidence, his team's data collection efforts, and the link between observed data and predictions in the above paper: https://x.com/mostrovs/status/1876798157595476420
• Two of Ostrovsky's earlier theoretical papers on the topic: (1) https://web.stanford.edu/~ost/papers/complementarity.pdf, (2) https://web.stanford.edu/~ost/papers/sdc.pdf
• Economist William Vickrey's influential paper on congestion pricing: Vickrey, W. S. (1969). Congestion theory and transport investment. American Economic Review 59 (2), 251–260. https://matthewturner.org/ec2410/readings/Vickrey_AER_1969.pdf

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