Time consistency of congestion tolls

Consider users who can choose between using two modes of travel (say a road and mass transit), and who can choose to incur a fixed cost that reduces t he future costs of using mass transit. A congestion toll on the road may se rve two purposes. First, it can induce users in the current period to use t ransit instead of the congested road. Second, users who anticipate the impo sition of tolls may be induced to incur the aforementioned fixed cost, ther eby reducing demand for use of the congested road in future periods. This p aper focuses on such investment decisions, showing that when government can not credibly commit to future tolls, the optimal road toll in each period m ay be low and congestion may be high.