Working papers in Transport Economics
The inefficiency of marginal cost pricing on roads
Abstract: The economic principle of road pricing is that a road toll
should equal the marginal cost imposed by an additional user, since this
will lead to efficient use of the transport facility. However, when the
road is used by traffic both from the road providing region as well as by
traffic from another region, the supplied road standard is likely to be too
low, since the consumer surplus of the users from outside the region is not
taken into account. This can be solved by letting an authority level higher
than the road supplier use taxes and earmarked transactions to raise the
road standard. (In Europe we see this done in the Trans European Network).
To do this the higher authority needs very detailed information about the
road and the users on local level. Further raising taxes and transactions
also involve costs that can be substantial. Another problem is that
transactions of this type it is hard to separate from other political
interference. This paper analyzes how a limited toll on top of the marginal
cost can serve the purpose of solving this problem locally, without
involving a higher authority.
Keywords: Marginal cost pricing; Congestion; Road quality; (follow links to similar papers)
JEL-Codes: R41; R48; (follow links to similar papers)
24 pages, September 5, 2014
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