Handbook of Research Methods and Applications in Transport Economics and Policy
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Handbook of Research Methods and Applications in Transport Economics and Policy

Edited by Chris Nash

Transport economics and policy analysis is a field which has seen major advances in methodology in recent decades, covering issues such as estimating cost functions, modelling of demand, dealing with externalities, examining industry ownership and structure, pricing and investment decisions and measuring economic impacts. This Handbook contains reviews of all these methods, with an emphasis on practical applications, commissioned from an international cast of experts in the field.
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Chapter 20: Approaches to internalisation of transport externalities

Werner Rothengatter


External economies and diseconomies cause market failures and lead to inefficiencies of the resulting allocations. These inefficiencies can be removed or at least reduced by internalising the externalities, i.e. by allocating the external costs or benefits to the parties which are responsible for their generation. In this chapter we first give a brief history of the literature treatment of external economies and diseconomies in section 20.2, in particular referring to the theories of Pigou and Coase as well as the approaches of ecological economics which focus on environmental damage. Section 20.3 deals with the definition of externalities because this determines their scope and also the extension of the necessary internalisation. Section 20.4 discusses the instruments of internalisation. While the neoclassical welfare economics based on Pigou’s concept of externalities try to solve the internalisation problem by using one instrument, the Pigou tax, other approaches prefer a bundle of instruments. They place pricing measures into a host of regulation, information, management and infrastructure provision policies which are applied in different combinations for every type of externality and triggered such that the desired reduction result is achieved at minimum costs.

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