A Modelling Approach
Transport Economics, Management and Policy series
Edited by Bruno De Borger and Stef Proost
Bruno De Borger and Stef Proost 1.1 INTRODUCTION Conceptually, the economic diagnosis of the transport problems currently faced by many European countries is quite simple. Transport produces a number of negative side eﬀects or externalities (such as congestion and air pollution) that users of the transport infrastructure either completely ignore, or insuﬃciently take into account in making their travel decisions. As a consequence, there is generally too much traﬃc. Moreover, the distribution of traﬃc between periods of the day and across transport modes is ineﬃcient: too much traﬃc takes place at inconvenient times using socially undesirable modes. Under ideal circumstances the suggested economic solution to the externality problem is quite simple as well: users of all transport modes and services should be charged for the marginal social costs, including all external costs, they inﬂict on society. This induces users to take account of all social costs in making their decisions. Implementation of this ﬁrst-best principle is in practice not trivial, however. It requires full knowledge of all social marginal costs and it has to correctly capture all the interactions between diﬀerent transport markets. Moreover, the basic principle has to be adjusted in second-best situations where for technical or political reasons correctly pricing all transport services at their social marginal cost is not feasible. In this chapter we provide a brief and fairly non-technical overview of the economic approach to the analysis of transport externalities that underlies much of the applied work that...
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