Efficiency and Equity Considerations in Road Pricing
Equity considerations are particularly important for the appraisal of road pricing schemes. We discuss and classify the most relevant aspects of equity in this context, and set out inequality measures from economics that may be used as outcome indicators
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Abstract Equity considerations are particularly important for the appraisal of road pricing schemes. We discuss and classify the most relevant aspects of equity in this context, and set out inequality measures from economics that may be used as outcome indicators with respect to these equity objectives. Road pricing is inherently a second-best problem due to the link between work trips and the labour market, where distortionary taxation exists. Consequently, efficiency and distributional issues both need to be considered simultaneously. To design the road pricing scheme in this case, it is suggested to solve the constrained optimisation problem of maximising welfare in the transport system as computed from a transport model, subject to relevant equity indicators reaching their target levels.
10.1 Introduction Due to increases in household car ownership rates, demographic changes and changes in the geographical patterns of housing, work and leisure activities, urban road networks are becoming increasingly congested in cities all over the world. This entails not only time losses for private and business transport, but also severe noise and pollution problems and degradation of the quality of life in the city centre and surrounding neighbourhoods. For the last 40 years, since the work of Walters (1961), Mohring and Harwitz (1962), Vickrey (1963, 1968) and Strotz (1965), economists have advocated road pricing as a solution to these problems, but somehow the idea still seems difficult to get across to the public. Singapore and London are the only cities with a road pricing system, i.e. tolling with a view to relieving congestion. Norwegian cities have toll rings with financing as their main purpose (Ramjerdi et al. 2004). Reasons for the reluctance and widespread opposition to road pricing are surveyed in Eliasson and Lundberg (2003). Concerns about the distributional impacts are prominent on this list. Equity reasons for opposition to the Norwegian toll rings are analysed in Langmyhr (1997). While some of the popular arguments against road pricing can be dismissed out of hand, all of the equity concerns merit close attention – not just to facilitate implementation of a measure that can improve the efficiency of the transport system, but because equity objectives are important social objectives in their own
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right. Furthermore, it might be argued that analyses of equity impacts are more important for road pricing decisions than for decisions about infrastructure construction. There are three reasons for this. First, infrastructure construction is an ongoing process where those who did not get their new road this year might be the winners next year. Indeed, there is evidence that such compensatory thinking is part of the informal decision criteria of Norwegian decision-makers (Fridstrøm and Elvik 1997). Road pricing is different in this respect. It is a permanent redesign of the whole transport system, with no chance of the losers ever getting compensated by a reverse pricing policy next
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