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Towards marginal cost pricing: A comparison of alternative pricing systems

Shepherd, S.P. (2003) Towards marginal cost pricing: A comparison of alternative pricing systems. Transportation, 30 (4). pp. 411-433. ISSN 1572-9435

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European urban areas are marred by the problems of congestion and environmental degradation due to the prevailing levels of car use. Strong arguments have thus been put forward in support of a policy based on marginal cost pricing (European Commission 1996). Such policy measures – which would force private consumers to pay for a public service that was previously provided «for free» – are, however, notoriously unpopular with the general public and hence also with their elected representatives – the politicians. There is thus an obvious tension between economic theory, which suggests that marginal cost pricing is the welfare maximising solution to urban transport problems, and practical experience, which suggests that such pricing measures are unwanted by the affected population and hence hard to implement through democratic processes. The AFFORD Project for the European Commission has aimed to investigate this paradox and its possible solutions, through a combination of economic analysis, predictive modelling, attitudinal surveys, and an assessment of fiscal and financial measures within a number of case study cities in Europe. In this paper the methodology and results obtained for the Edinburgh case study are reported in detail. The study analyses alternative road pricing instruments and compares their performance against the theoretical first best situation. It discusses the effect of coverage, location, charging mechanism and interaction with other instruments. The paper shows that limited coverage in one mode may lead to a deviation from the user pays principle in other modes, that location is as important as charge levels and that assumptions about the use of revenues are critical in determining the effect on equity and acceptability. Finally the results show that a relatively simple smart card system can come close to providing the economic first best solution, but that this result should be viewed in the context of the model assumptions.

Item Type: Article
Copyright, Publisher and Additional Information: © 2003 Springer Verlag. This is an author produced version of a paper published in Transportation. Uploaded in accordance with the publisher's self-archiving policy.
Keywords: road pricing, urban transport, optimisation, marginal cost pricing.
Institution: The University of Leeds
Academic Units: The University of Leeds > Faculty of Environment (Leeds) > Institute for Transport Studies (Leeds)
Depositing User: Adrian May
Date Deposited: 03 May 2007
Last Modified: 08 Jun 2014 08:44
Published Version: http://www.springerlink.com/content/w74r77571066p6...
Status: Published
Publisher: Springer Verlag
Refereed: Yes
Identification Number: 10.1023/A:1024727924926
Related URLs:
URI: http://eprints.whiterose.ac.uk/id/eprint/2454

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