MC-ICAM Approach to Pricing in Transport

Availability: Public (only once status above is "Accepted") The question whether marginal cost pricing should be applied in the transportation sector has attained a great deal of attention during the last few years. It is argued that marginal cost pricing, or marginal social cost pricing – a term used when one wishes to emphasise that the pricing is applied by a government / regulator – would secure social efficiency by ensuring that each activity by each user of transport infrastructure would be extended to the point where the social benefit of the last unit equals the social cost. Otherwise, since marginal private costs and benefits can differ significantly from the corresponding social costs and benefits – due to various externalities and other market imperfections – the resulting market allocation would typically be inefficient. The MC-ICAM project will address issues related to the actual implementation of the pricing principle. It will investigate an implementation path of change – the transition path suggesting how to get from the current non-optimal situation with no marginal cost pricing to the optimal end state(s). The project will incorporate or cover: 1. all major modes (urban, interurban road, rail, air, water), and both freight and passenger transport; 2. all relevant levels of decision-making (local / regional, national, EU); and 3. intramodal implementation issues, intermodal issues (where conditions in one mode can affect the implementation in another), and also intersectoral issues relevant to the implementation. The goal of this report is to set the stage for the MC-ICAM project. This report will: 1. provide an overview of the project (policy questions, research themes, case studies); 2. present necessary background reviews (policy developments, practical experience, literature); and 3. elaborate on the MC-ICAM approach to marginal cost-based pricing in transport. MC-ICAM will incorporate a whole range of policy goals affecting the implementation of marginal social cost pricing in practice. A primary policy goal behind marginal social cost pricing is to promote economic efficiency. Marginal social cost pricing in transport must be motivated by a government's / regulator's desire to improve the overall efficiency of the transport system and – from a broader perspective – of the spatio-economic activities it serves. Although the promotion of economic efficiency (both in the short run and long run and as part of the broader goal of sustainable economic growth) is the driving force behind marginal social cost pricing (if people do not want …