Congestion surcharge and wage regulation on transportation network companies with congestion externalities

This paper studies the impact of congestion surcharge on transportation network companies (TNC). We propose a queuing theoretic equilibrium model that captures the incentives of the passengers, drivers, and the platform, and accounts for the congestion externalities of TNC vehicles. Under a wage floor on TNC drivers, we consider two schemes of congestion surcharge: (a) surcharge on each TNC trip, and (b) surcharge on each vehicle hour. We show that both congestion taxes could reduce the TNC ridership, but this impact is mitigated by the wage floor and cannot significantly reduce the number of TNC vehicles. In contrast to trip-based surcharge proposed by New York City, we advocate the congestion tax based on vehicle hours. We show that time-based congestion surcharge offers a strict Pareto improvement. It leads to higher passenger surplus, higher driver surplus, higher platform profit, and higher tax revenue for the city.