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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 7: The external costs of transport

Inge Mayeres and Kurt Van Dender


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 of studies have tried to determine...

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