The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • Richard Arnott
  • Marvin Kraus
Reference work entry


‘Congestion’ is the phenomenon whereby the quality of service provided by a congestible facility degrades as its aggregate usage increases, when its capacity is held fixed. Here, the economic theory of congestion is developed in the context of road traffic. The primary questions of interest are how the capacity of a congestible facility and its usage fee should be chosen. This leads naturally to the question of whether the usage fees collected will be sufficient to cover capacity costs at the optimum.


Clubs Congestion Externality cost First-best pricing Local public goods Ramsey pricing Second-best theory 

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Richard Arnott
    • 1
  • Marvin Kraus
    • 1
  1. 1.