Milena Almagro, University of ChicagoChicago Booth School of Business

Paper: Optimal Urban Transportation Policy: Evidence from Chicago

Coautores: Felipe Barbieri, Juan Camilo Castillo, Nathaniel Hickok, and Tobias Salz

Abstract: Urban transportation policies have become a focal point in cities’ efforts to curb congestion and address environmental and distributional concerns. This paper characterizes the optimal mix of policies and evaluates their welfare and distributional effects. To that end, we present a framework of a municipal government aiming to maximize welfare. The government chooses the prices and frequencies of different modes of transportation, subject to a budget constraint that introduces monopoly-like distortions. We move on to an empirical application of this framework to the city of Chicago. We first construct a novel dataset of all relevant transportation modes. On the demand side, our empirical model captures the rich heterogeneity in travel choices. On the supply side we account for differential congestion and costs of different road-based modes. Our counterfactual results suggest that if the city only intervenes on public transit, it should lower transit prices even further but also lower frequency to meet its budget constraint. On the other hand, introducing a per-kilometer tax on drivers leads to higher welfare gains.