The implementation of marginal external cost pricing in road transport

This paper discusses a number of issues that will become increasingly important nowthat the concept of marginal external cost pricing becomes more likely to be implementedas a policy strategy in transport in reality. The first part of the paper deals with thelong-run efficiency of marginal external cost pricing. It is shown that such prices notonly optimize short-run mobility, given the shape and position of the relevant demandand cost curves, but even more importantly, also optimally affect the factors determiningthe shape and position of these curves in the long run. However, first-best prices are ahypothetical bench-mark only. The second part of the paper is therefore concerned withmore realistic pricing options. The emphasis is on the derivation of second-best pricingrules. Four types of second-best distortions are considered: distortions on other routes,in other modes, in other economic sectors, and, finally, due to government budgetconstraints.