Tolls are imposed for a multiplicity of reasons among them is the fact that they provide stable, dedicated source revenue to local authorities and governments besides internalizing externalities by making road users to pay for their services. Consequently, tolls lead to the development of the private sector, result into the diversion of traffic to different roads, the toll may be overly high to be afforded by the poorer sections of the population, reduction of unnecessary travel among others. For a toll to be effective it must build in the sensitivity of demand of road use.
Tolls vary, according to their purposes as well as their costs and benefits (Sayce et al, 2006). Tolling imposes are regressive in nature and represent a financial burden on the ordinary citizens and more so if toll is not meant for congestion management nor are the revenues meant for putting up other roads as is the case with the Turnpike stretch in the central region. The lifting of the toll in this section will benefit the general population without adding on the congestion. However, lifting the toll may result in a significant rise in traffic that was previously barred from accessing the roads by the tolls.
A rise in traffic would in turn put a strain on parking facilities, increase emissions into the environment, and reduce safety on the roads among other results. Raising revenue is an important reason for imposition of tolls and these revenues are vital for funding road construction as well as other public programs. Thus tolling of the section of Turnpike which is used by the well heeled for leisure travel would not only have no impact on the level of traffic, and since this road is never congested any way, it represents a good opportunity to raise revenue.
In addition such revenues would have a positive redistribution effect in income to the poor and thusly, lifting the tolls on this section of the road would lead to loss of revenue. Tolls imposed at different times of the day where traffic is at the peak are known to cut down traffic by encouraging motorists to reschedule their travel time. Congestion tolling is effective and is in fact indispensable in easing traffic jams in urban areas. The stretch of Turnpike into the Eastern part of the state is usually jammed during the rash hour times and thusly lifting the tolls at all hours would inevitably increase traffic.
This would result from the traffic that was previously directed to other roads owing to the tool being redirected. The result of this rise in traffic would be a fall in crash costs and traffic on secondary roads, in addition to a rise in fuel use and emissions into the environment as well as the psychological impact of jams on drivers. In addition, congestion pricing increases basic mobility by choking off private vehicles, it internalizes the externalities resulting from congestion by charging individual motorists among other positive gains that would be lost if with the lifting of the toll at rush hours.
Principal Agent Problem The disharmony between the principal and the agent arises from the wish by a risk neutral party who must use a variety of incentives to make an agent who is risk averse to undertake a costly action which can hardly be observed but in the interest of the principal and thusly the incentives effectively shift the risk on to the agent. Ownership and management are separated and if those in control undertake actions that jeopardize the owners stake in their own interest there arises the difficulty.
In addition, the managers have expertise and sophisticated information which was both unavailable to the shareholders and even if it was, the shareholders did not have the capacity to evaluate it and instead owners could only judge the returns to their investments through increased profits. The bank managers who issued unsecured loans to the credit worthless borrowers jeopardized the interest of the their shareholders to meet their lending targets among other goals and with a lack of controls, shown by collusion of rating agencies, the risk contact of the agents went undetected resulting into the mortgage crisis (Wood & Williams, 1990).