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OXFORD REVIEW OF ECONOMIC POLICY DRAFT AT 4 October 1990
PRICING AND CONGESTION: ECONOMIC
PRINCIPLES RELEVANT TO PRICING
ROADS
DAVID M NEWBERY
Department of Applied Economics, University of Cambridge
I. INTRODUCTION
The road network is a costly and increasingly scarce resource. For the UK the Department of Transport
(1989a) calculates that total road expenditures (capital and current) or‘road costs’ averaged £4.34 billion
per year at 1989/90 prices for the period 1987/8-1989/90. Public expenditure on roads has been fairly
stable recently, increasing by about 6 per cent in real terms between 1982/3 and 1988/9, but with no
strong trend. (Department of Transport, 1989b, Tables 1.18, 1.22, 1.23.) From the 24.6 million vehicles
registered, road taxes of £12.7 billion were collected(including the £1.4 billion car tax), or 2.9 times the
Department’s figures for ‘road costs’. In 1987 15.1% of consumers’ expenditure was on transport and
vehicles, and 11.3% was on motor vehicles alone. Clearly, road transport is of major economic significance.
Car ownership per 1000 population in the UK appears to be catching up on the rates in the
larger European countries and is now about83% of French and Italian levels, 73% of West German
levels. Over the decade 1979-1989 the number of private cars increased from 14.3 to 18.5 million, or by
29%. From 1978-1988, the number of total vehicle-km driven rose from 256 to 363 billion or by 42%.
As the length of the road network increased rather less, the average daily traffic on each km of road rose
by 34% over the same decade onall roads and by 52% on motorways. Traffic on major roads in built up
areas (ie those with a speed limit of 40 mph or less) increased by 13%. (Department of Transport, 1989b,
Tables 2.1, 2.3.)
As road space is a valuable and scarce resource, it is natural that economists should argue that it should
be rationed by price - road users should pay the marginal social cost of using the road network ifthey are
to be induced to make the right decisions about whether (and by which means) to take a particular
journey, and, more generally, to ensure that they make the correct allocative decisions between transport
and other activities. If road users paid the true social cost of transport, perhaps urban geography,
commuting patterns, and even the sizes of towns would be radically different fromthe present. The
modest aim here is to identify these social costs, provide rough estimates of their magnitude for Britain,
and hence identify the major policy issues.
One way to focus the discussion is to ask how to design a system of charges for road use. The problem
of designing road charges can be broken down into various subproblems. First, what is the marginal
social cost (that is, theextra cost to society) of allowing a particular vehicle to make a particular trip?
Part will be the direct cost of using the vehicle (fuel, wear and tear, driver’s time, and so forth) and will
be paid for by the owner. This is the private cost of road use. Other costs are social: some will be borne
by other road users (delays, for example); some by the highway authority (extra roadmaintenance); and
some by the society at large (pollution and risk of accidents). These are called the road use cost - the
social costs (excluding the private costs) arising from vehicles using roads. It seems logical to attempt
to charge vehicles for these road use costs, so as to discourage them from making journeys where the
benefits are less than the total social costs (private costs plus road usecosts). The first task, therefore,
is to measure these road use costs.
The second question is whether road users should pay additional taxes above these road use costs. One
argument is that road users should pay the whole cost of the highway system, not just the extra cost of
road use, either to be ‘fair’ in an absolute sense or to achieve parity or equity with, say, rail users (in those...