Economic and Equity Effects of Marginal Cost Pricing in Transport

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.