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Chapter 16: Economic Regulation of Transport: Principles and Experience
Ian Savage Introduction Transport represents a huge proportion of the world’s economic activity. The Eno Foundation’s annual Transportation in America compendium of statistics estimates that passenger transport represents 10 per cent of the United States’s Gross Domestic Product, and freight transport another 6 per cent. With the inclusion of some closely related industries, transport probably accounts for about a fifth of all economic activity. Not surprisingly, this has made transport a major focus of government regulatory activity. In the United States the railways were one of the first industries to be regulated by the federal government, in 1887. In most, if not all, countries the government is not only a regulator, but also an important producer of transport services. At a minimum, government provides most of the roads, and it is common for buses, subways, railways, airlines, airports and ports to be in public ownership. The regulation takes (at least) three forms. This chapter will deal with only one of these – the economic regulation of prices, output, entry and exit. Transport is also subject to regulation of product quality, most notably safety. For a review of the economics of transport safety and its regulation see Savage (2001). Transport is also subject to environmental regulation concerning damage to surrounding property and watersheds during the construction of new infrastructure, and the moderating of the risks of externalities caused during the transport of dangerous or hazardous cargo (for a review of the latter see Savage, 2003). Characteristics of transport There are a number...
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