The implementation of marginal external cost pricing in road transport**I would like to thank ERSA's Epainos Prize Jury for awarding me the 1996 Epainos Prize for a paper summarising my PhD†research at the Free University in Amsterdam. I am also grateful to Peter Nijkamp and Piet Rietveld for the superb supervision during my PhD†years, which led to the work summarised in the above†mentioned paper. In consultation with the editor the current article builds upon the prize†winning paper, but at the same time extends beyond it. The work presented in this article was carried out within the EU DG†VII project AFFORD (PL97†2258). Financial support by the EU is gratefully acknowledged. The views expressed in this article, however, represent the author's own, and are not necessarily shared by the EU, nor by the AFFORD consortium. Finally, the useful comments of two anonymous referees on an earlier draft version of this article are appreciated. The usual disclaimer applies

This article discusses a number of issues that will become increasingly important now that the concept of marginal external cost pricing becomes more likely to be implemented as a policy strategy in transport in reality. The first part of the article deals with the long†run efficiency of marginal external cost pricing. It is shown that such prices not only optimize short†run mobility, given the shape and position of the relevant demand and cost curves, but even more importantly, also optimally affect the factors determining the shape and position of these curves in the long run. However, first†best prices are a hypothetical bench†mark only. The second part of the article is therefore concerned with more realistic pricing options. The emphasis is on the derivation of second†best pricing rules. Four types of second†best distortions are considered: distortions on other routes, in other modes, in other economic sectors, and due to government budget constraints.