Pricing as a tool for funding and regulation in an equity s perspective

PIARC
April 2009

Traditionally, instruments such as taxes, charges and tolls have been used for funding infrastructure construction and maintenance. In recent years, pricing has been used for regulatory purposes as a measure against congestion, for mitigating environmental impacts; and for safety improvement.

The question whether road pricing could be a useful instrument and in which way it should be applied can only be sufficiently answered after clearly defining the objectives of the instrument. Does the priority lie in improving the environmental situation, in creating more financial sources for infrastructure projects in the transport sector or is the main purpose to reach a better usage of existing infrastructure capacities and/or a general reduction in road traffic? Possible tools for different objectives are discussed in the report.

Pricing is usually introduced in a given economic, geographical and social context, and following more or less well defined objectives. Experiences are mostly successful but raise concerns about equity. There is need for precise definition of Road Pricing if one wants to consider equity issues. Different designs of Road Pricing have to be distinguished and the allocation of the revenue has to be considered. The intended use of revenue from pricing will strongly influence not only the effective ex-post distribution but also the ex-ante perception of equity of specific projects.

In addition, specific application of Road Pricing - e.g. as a fee for using a tunnel, as a charge for entering a city area or for driving on a special motorway lane - has to be discussed in the context of the overall transport policy and especially other fiscal measures like gasoline charges and vehicle taxes.

The introduction of a specific pricing scheme influences vertical (by income group), horizontal (by interest group) and geographical (by area) distribution of costs and benefits. The expected distribution impacts will largely determine the acceptance of a given project.

Considering overall costs and benefits, pricing impacts in general can be evaluated based on consumer surplus analysis with the help of a socio-economic model. These models assist in estimating the value that consumers place on goods and services they use.

In reality, acceptability does not only depend on distribution among groups (horizontal distribution) but also on vertical and geographical distribution of costs and benefits. Although a quantitative assessment was not done, the working group presents some considerations on these issues based on existing literature and intuition.

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