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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 9: Computation of the internal costs of transport in the model

John Peirson and Roger Vickerman


John Peirson and Roger Vickerman 9.1 INTRODUCTION The major purpose of the models used in this book is to investigate the welfare effects of policies that improve the pricing of passenger and freight transport. The investigation of these welfare effects requires data on the demand, supply and internal and external costs of transport with which to calibrate the transport models and investigate the effects of different transport policies. This chapter considers the estimation of the internal costs that are required as input for the models. We start with some conceptual issues in Section 9.2. Then an overview is given of different methods for estimating the various internal cost components (Section 9.3). In a fourth section we review the methods used for the purpose of this book. Finally, a conclusion follows. 9.2 INTERNAL COST INPUTS: SOME CONCEPTUAL ISSUES The models require estimates of the marginal resource cost of the supply of the different transport modes. Unless otherwise noted all models assume linear cost functions for all transport modes. In other words, costs are described by a fixed cost and a constant marginal resource cost. For convenience, we take the term ‘resource cost’ as referring to the ‘marginal resource cost’ from hereafter. The models take the infrastructure of each transport mode as given. Thus, infrastructure costs are a sunk fixed cost and should not appear in the estimates of resource cost. For both private and public transport, additional demand for transport requires a proportionate increase in...

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