Congestion, Tolls, and the Economic Capacity of a Waterway

THREE QUESTIONS ARISE WHENEVER CONGESTION OCCURS. THE FIRST QUESTION CONCERNS THE OPTIMAL USE OF A FACILITY (THE DETERMINATION OF ECONOMIC CAPACITY). THIS QUESTION MIGHT BE ANSWERED BY A SYSTEM OF OPTIMAL TOLLS OR SUBSIDIES WHICH EQUATE PRIVATE TO SOCIAL COST. TO ILLUSTRATE THE ANALYSIS, THE SOCIAL COST OF ADDING A TOW TO A WATERWAY WAS CALCULATED, AND THE TOLL WHICH WOULD CAUSE THE TOW OPERATOR TO FACE SOCIAL COST WAS DETERMINED. THE SECOND QUESTION CONCERNS THE DECISION TO EXPAND PHYSICAL CAPACITY (WHEN IS THE DEMAND SUFFICIENTLY LARGE TO JUSTIFY EXPANSION?). THIS QUESTION MIGHT BE ANSWERED BY A BENEFIT-COST ANALYSIS OF THE EXPANSION DECISION. FOR EXAMPLE, THE BENEFIT OF EXPANDING A LOCK IS THE REDUCTION IN TOTAL LOCKING TIME. IF THIS DOLLAR BENEFIT EXCEEDS THE COST OF EXPANSION, PHYSICAL CAPACITY SHOULD BE INCREASED. THE THIRD QUESTION CONCERNS THE EFFECT OF A TOLL (OR OF ITS ABSENCE) ON THE CHARACTER OF THE SERVICE DEMANDED (THE AMOUNT OF SERVICE TIME DEMANDED BY A SINGLE CUSTOMER). THIS QUESTION MIGHT BE ANSWERED BY NOTING THAT CONGESTION RESULTS FROM THE AMOUNT OF SERVICE TIME DEMANDED BY A CUSTOMER. THUS, THE OPTIMAL TOLL SHOULD DEPEND ON ACTUAL SERVICE TIME. /AUTHOR/