This chapter provides a compact overview of the theory of welfare-related pricing in the context of transport. It sheds light on how the pricing of transport services can be optimised such that transport markets are (Pareto) efficient, emphasising the role of external costs associated with transport such as congestion, local and greenhouse gas emissions, noise, and accidents. The chapter provides an overview of standard static and dynamic modelling approaches to analyse and optimise pricing in transport markets, and discusses some relevant extensions to these standard models (atomic users, heterogeneity in time valuations, networks, tradeable permits vs. prices). Finally, it summarises the main optimisation methods that are typically used to solve these models.
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