Abstract for: Regulation or information: Can we influence city competition?

In this paper we model the impacts of competition between two cities when considering demand management strategies on both the optimal tolls and residential location choices. An isolated city is studied first and a simplified welfare function is used to determine the optimal toll around the central area. A twin city is then added. Traffic from the neighbouring city may be charged and the revenue retained - a form of tax exporting behaviour which should increase the welfare of the city. We show that there exists only one non-co-operative solution which forms a Nash trap with higher tolls than under the regulated case. We then set up a game in the form of a flight simulator and report on results of the game played by pairs of students who are asked to act as local authority decision-makers. The aim is to test (a) whether the strategies adopted are as theory predicts and (b) whether the players recognise the benefits of lower tolls when given information about the regulated solution and collaborate or continue to play to win. The results show that players respond to the information and maintain a collaborative solution which may have significant implications for regulation and the development of cities within regional partnerships.