Abstract
Traffic congestion is one example of externality, which is caused by the fact that a driver does not need to compensate other drivers for additional discomfort that the driver creates. The optimal traffic density can be achieved by imposing traffic tariffs. Some foreign cities have already introduced peak road pricing system (e. g. Singapore, London) in order to regulate traffic volume in metropolitan areas. Some people claim that floor-area ratio regulations are intended for mitigating traffic congestions, however this is completely a contradiction. By lowering floor-area ratio, less people can utilize more productive area of the cities and thus economically inefficient and losing benefits from agglomeration economy (positive externality, e. g. information spillover among financial institutions). The best solution for congestion problems in the metropolitan area is to impose tariff and devote tariff revenue to enlarge the capacity for mass transportation (e. g. to construct bypasses to highways or additional rails to the current railroads) in order to further mitigate the congestion.
