It has always been a major task of economists to set incentives so that resources are allocated in the most efficient way. Nevertheless, the Transportation Sector in general was characterised for a long time by government intervention. Radical changes in transport policies - especially in the UK and later also in other European countries came along at the beginning of the 1980s and were largely supported on a theoretical basis by the new concept of contestable markets. Accordingly the policy of deregulation and privatisation of, for example, express coaches, buses and aviation, has resulted in significant product innovation and rising efficiency.
As road space is a valuable and scarce resource we would argue that it ought to be rationed by a price mechanism. Road users should pay for using the road network to make correct allocative decisions between transport and other activities.
In the past, the technical possibilities of road pricing were very limited but with the advent of electronic road pricing, cars no longer have to stop to be charged.
Both aspects, the more liberal political climate of deregulation and privatisation in the last years and the new technology, are essential prerequisites for the actual discussion of road pricing. On a more practical political basis we could also identify the interest of the state to create a new source of revenues although road pricing does not necessarily imply a higher burden for car users.
After a brief description of electronic road pricing this paper will outline the costs of using a road and give a definition of the price to be charged. Then the effects of road pricing shall be identified and critically evaluated before the basic results will be summarised.
The complete installation of such an electronic system would take some time. In the meantime area licences could be sold for very congested zones, such as city centres. (This solution is used in Singapore for the rush hour traffic with considerable success. The impact of its introduction was an immediate reduction of 24,700 cars during the peak time and a rise of traffic speed by 22%.)
a) road damage costs
b) accident externalities
c) congestion costs
d) environmental costs.
In a market system without transaction costs the other road users would be willing to pay the additional car the amount of their opportunity costs of time and additional fuel for not entering the road. As transaction costs have been obviously immense (if a perfect bargaining process would have been possible at all) so far, only an electronic pricing system can overcome the huge existing transaction costs between the road users.
local: emission of CO, NC, NO2
global: emission of CO2, CFC
noise and vibrations
land use effects (destruction of wildlife habitats and the landscape)
A basic problem still remains, however, : road users have to get the information about the changing road prices immediately to optimise their individual transport decisions. (This could only be guaranteed if the motorist would have access to the prices via a board computer.)
* Furthermore, it reveals the true economic costs of the road use (including replacement costs) so that intermodal competition would become fairer. Because road prices would be primarily connected with congestion costs, some distributional and locational effects could arise. Costs of driving in non-urban areas would probably fall whereas urban driving costs would increase so that in the medium run, the quality of the public urban transport system would improve.
* In the case of pricing highways on the continent, road pricing is a good instrument to overcome the free rider problem of foreign carriers using "home country" highways. This is especially interesting against the background that current ways of financing highways are very different. For that reason actual competition between international carriers is not neutral.
* As shown in the previous section, road damage costs of cars are almost zero whereas heavy trucks cause most of the damage. Therefore, a vehicle specific tax depending on the damaging power would be a simple and effective wayof charging efficiently. Road pricing systems could improve this instrument a little by taking the quality of roads that were actually used into account.
* In terms of negative environmental externalities, road pricing is (with the exception of noise) probably not the optimal instument for internalisation. Taxes on fuel or emission fees, for instance, charge vehicle emissions in a moredirect way and they are very simple to design.
Furthermore it must be mentioned that the effect of road pricing depends to a large extent on the authority that receives the revenues and its way of using the money. Economists would argue that the profits made should be reinvested into the transportation system to generate an efficient outcome rather than cross-subsidising other traffic modes or other state activities.
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