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Reforming Transport Pricing in the European Union

A Modelling Approach

Edited by Bruno De Borger and Stef Proost

This timely book deals with the problem of pricing passenger and freight transportation within Europe. The contributors argue that current legislation affecting pricing and regulation is increasingly less successful in dealing with market failures and externalities such as congestion, air pollution, noise and accidents. Technological progress and greater European co-operation has brought increased scope for the reform of transport policies.
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Chapter 1: Transport problems: the economic diagnosis

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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