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Economic and Equity Effects of Marginal Cost Pricing in Transport


  • Fridstrøm, Lasse
  • Minken, Harald
  • Moilanen, Paavo
  • Shepherd, Simon
  • Vold, Arild


Marginal cost transport pricing - if implemented in European cities - may give rise to substantial welfare benefits for the urban populations. Depending on the local conditions and on the policy instruments used, annual welfare gains may typically amount to 100-400 euros per capita, as measured by the willingness-to-pay within the affected urban population. These welfare gains have been estimated by means of transport models applied to the cities of Edinburgh, Helsinki, and Oslo. Real-world instruments considered include cordon toll rates, parking charges, fuel tax, vehicle tax, distance based charges, and public transport fares and level-of-service. Not all of these instruments are currently available to local urban authorities - some belong at the national level government. Thus the study distinguishes between second-best policies "under current institutions", and those which are practicable only "after institutional reform". In the latter variant, it is assumed that local authorities are allowed access to certain instruments that are not presently at their disposal, or that national authorities accept to tune the level of certain instruments so as to maximise the welfare of the urban population.

Suggested Citation

  • Fridstrøm, Lasse & Minken, Harald & Moilanen, Paavo & Shepherd, Simon & Vold, Arild, 2000. "Economic and Equity Effects of Marginal Cost Pricing in Transport," Research Reports 71, VATT Institute for Economic Research.
  • Handle: RePEc:fer:resrep:71

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    Cited by:

    1. West, Jens & Börjesson, Maria & Engelson, Leonid, 2016. "Accuracy of the Gothenburg congestion charges forecast," Transportation Research Part A: Policy and Practice, Elsevier, vol. 94(C), pages 266-277.
    2. Eliasson, Jonas & Börjesson, Maria & van Amelsfort, Dirk & Brundell-Freij, Karin & Engelson, Leonid, 2013. "Accuracy of congestion pricing forecasts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 52(C), pages 34-46.
    3. Börjesson, Maria & Kristoffersson, Ida, 2014. "Assessing the welfare effects of congestion charges in a real world setting," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 339-355.
    4. Milne, David & Niskanen, Esko & Verhoef, Erik, 2001. "Legal and Institutional Framework for Marginal Cost Pricing in Urban Transport in Europe," Research Reports 76, VATT Institute for Economic Research.
    5. Moilanen, Paavo, 2000. "Assessing the Effectiveness of Marginal Cost Pricing in Transport - the Helsinki Case," Discussion Papers 223, VATT Institute for Economic Research.
    6. Welch, Timothy F. & Mishra, Sabyasachee, 2014. "A framework for determining road pricing revenue use and its welfare effects," Research in Transportation Economics, Elsevier, vol. 44(C), pages 61-70.
    7. Mathisen, Terje Andreas & Solvoll, Gisle, 2008. "Competitive tendering and structural changes: An example from the bus industry," Transport Policy, Elsevier, vol. 15(1), pages 1-11, January.


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