Who is William Vickrey
William Vickrey is a Canadian economist who won the Nobel Prize in Economic Sciences in 1996 along with James Mirrlees for their work on information asymmetry as it relates to taxation and moral hazard problems.
BREAKING DOWN William Vickrey
William Vickrey was a professor at Columbia University for decades, and he also worked for the National Resources Planning Board and the U.S. Treasury's Division of Tax Research. In addition, Vickrey was a member of the National Academy of Sciences and president of the American Economic Association. Vickrey died in 1996, just three days after learning of his Nobel Prize.
Vickrey’s work in public economics was generally focused on a few key areas including taxation, pricing in public utilities and urban transportation.
He is known for his work using the principles of game theory to describe the functioning of auctions. The Vickrey auction, which is sometimes also called a second bid auction or second price auction, is named after him. In this type of an auction, the winning buyer pays the second-highest bid. According to Vickrey, in this type of an auction, bidders have an incentive to bid truthfully.
Additionally, he is known for his work during World War II, when he helped to create a new estate tax for Puerto Rico. Vickrey also worked on a revision of Japan's tax system.
Vickrey and Congestion Pricing
Vickrey was a pioneer in developing the idea of congestion pricing, a dynamic pricing strategy which is meant to regulate demand without regulating supply. It is used in transportation, shipping, telecommunications and public utilities. People are charged a higher fee for using public goods at times of high demand when congestion pricing is implemented. The higher fee is meant to serve as a disincentive that can help ease excess demand or traffic congestion.
Vickrey first came up with a model for congestion pricing in the early 1950s, when he did research on transit rates in New York City for the mayor’s office. He proposed zoned and peak fares for New York’s subway system in 1951, but elected officials did not implement his suggestion at the time.
In 1959, he suggested putting transponders in vehicles, monitoring when they entered congested areas and charging people higher fees for driving through congested areas and at rush hour. A version of Vickrey’s congestion pricing system has since been implemented in London: the system charges drivers a higher fee to use roads during times of peak demand, with the aim of reducing traffic congestion.
Vickrey also proposed similar higher fees based on time of day and congestion for parking meters fares, to reduce congestion on bridges and tunnels and on subways and buses.