A Modelling Approach
- Transport Economics, Management and Policy series
Edited by Bruno De Borger and Stef Proost
7. The external costs of transport Inge Mayeres and Kurt Van Dender 7.1 INTRODUCTION The aim of this chapter is to describe the methodology used in this book to determine the marginal external costs of transport. As diﬀerent concepts of external costs are used in the literature, it is useful to restate the deﬁnition and the use of external cost information in economics. Our main interest here is in the measurement of the marginal external costs of transport by road, rail and inland navigation. According to the deﬁnition by Baumol and Oates (1988) an ‘externality is present whenever some individual’s (say A’s) utility or production relationships include real (that is, nonmonetary) variables, whose values are chosen by others . . . without particular attention to the eﬀects on A’s welfare’. The marginal external costs of transport use correspond therefore to the costs caused by an additional transport user that are not borne by the user himself but by others. They may consist not only of costs in the monetary sense, but also of, for example, time losses, pollution, noise and so on. We focus on marginal rather than total external costs because the former are the necessary ingredient for computing the marginal social cost. This is the sum of the marginal private resource costs paid by the user and the marginal external costs. Prices fulﬁl their allocative function best when they are based on the marginal social cost rather than on the average social cost. Recently, a number...
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