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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 4: Methodology and structure of the urban model

Stef Proost and Kurt Van Dender


1 Stef Proost and Kurt Van Dender 4.1 INTRODUCTION The graphical presentation of Chapter 1 introduces the microeconomic framework of analysis used throughout this book. It shows that the current transport situation may be inefficient because of the presence of non-internalised externalities and because of the presence of unjustified subsidies. The suggested approach to improve the efficiency of the transport system is to bring prices in line with social costs. This requires the internalisation of external costs, through taxation and/or regulation as well as an abolishment of unjustified subsidies. It is our objective to apply this framework in case study work for European regions and cities. The policy reform packages discussed in Chapter 3 need to be assessed in terms of their impact on the efficient operation of transport systems. Policy assessment requires a careful analysis of the quantitative importance of the different mechanisms. Because of the complexity of transport systems, in particular because of the large number of interacting transport markets and because of constraints on policy instruments, graphical analysis will not suffice for such a task. A solution is to translate economic theory into a mathematical model, suitable for implementation as computational software. The economic literature provides several theoretical and graphical analyses of the optimal structure of transport prices, but only few actual computations of optimal prices. Our model extends a previous urban transport model (De Borger et al., 1997), which focussed on optimal pricing policies only, did not use an...

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