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articles: The implementation of marginal external cost pricing in road transport Long run vs short run and first-best vs second-best

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  • Erik T. Verhoef

    () (Department of Spatial Economics, Free University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands)

Abstract

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.

Suggested Citation

  • Erik T. Verhoef, 2000. "articles: The implementation of marginal external cost pricing in road transport Long run vs short run and first-best vs second-best," Papers in Regional Science, Springer;Regional Science Association International, vol. 79(3), pages 307-332.
  • Handle: RePEc:spr:presci:v:79:y:2000:i:3:p:307-332 Note: Received: 3 August 1998
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    Cited by:

    1. Carmona, Miguel, 2010. "The regulatory function in public-private partnerships for the provision of transport infrastructure," Research in Transportation Economics, Elsevier, vol. 30(1), pages 110-125.
    2. Coria, Jessica & Bonilla, Jorge & Grundström, Maria & Pleijel, Håkan, 2015. "Air pollution dynamics and the need for temporally differentiated road pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 178-195.
    3. Malul, Miki & Bar-El, Raphael, 2009. "Core-Periphery Market Failure in the Location of Economic Activity," The Review of Regional Studies, Southern Regional Science Association, vol. 39(1), pages 85-98.
    4. Macharis, Cathy & Van Hoeck, Ellen & Pekin, Ethem & van Lier, Tom, 2010. "A decision analysis framework for intermodal transport: Comparing fuel price increases and the internalisation of external costs," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(7), pages 550-561, August.
    5. Button, Kenneth, 2004. "1. The Rationale For Road Pricing: Standard Theory And Latest Advances," Research in Transportation Economics, Elsevier, vol. 9(1), pages 3-25, January.
    6. Erik (E.T.) Verhoef, 2017. "Optimal Congestion Pricing with Diverging Long-run and Short-run Scheduling Preferences," Tinbergen Institute Discussion Papers 17-077/VIII, Tinbergen Institute.

    More about this item

    Keywords

    externalities; Pigouvian taxation; road transport; second-best;

    JEL classification:

    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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