TRANSPORTSTRANSPORTS

NEGATIVE EXTERNALITIES VS. NEGATIVE EXTERNALITIES VS. POSITIVE EXTERNALITYPOSITIVE EXTERNALITY

NEGATIVE EXTERNALITY VS. NEGATIVE EXTERNALITY VS. POSITIVE EXTERNALITYPOSITIVE EXTERNALITY

Externalities or ‘spillovers’ are difficult to define in a Externalities or ‘spillovers’ are difficult to define in a non-technical way. But the concept is a familiar one.non-technical way. But the concept is a familiar one.

In essence, In essence, a negative externalitya negative externality occurs occurs when one individual engages in na activity that when one individual engages in na activity that

imposes costs on another, and the victim cannot imposes costs on another, and the victim cannot normally benormally be

compensated for them through thecompensated for them through the market mechanism. The classic examplemarket mechanism. The classic example of such a ‘bad’ is a smoky factory thatof such a ‘bad’ is a smoky factory that harms a laundry next door to it harms a laundry next door to it PositivePositive externalitiesexternalities, on the other handp,r ovide, on the other handp,r ovide benefits to those affected by them.benefits to those affected by them.

GOODS AND BADS INGOODS AND BADS INTRANSPORTTRANSPORT

Transport services themselves are a Transport services themselves are a ‘good’.‘good’.

They are an essential input into the They are an essential input into the production process and personal production process and personal consumption. [...] Byconsumption. [...] By

convention, however, national-incomeconvention, however, national-incomeaccounts do not include accounts do not include non-tradednon-traded itemsitems. .

GOODS AND BADS INGOODS AND BADS INTRANSPORTTRANSPORT

The cost to the community ofThe cost to the community ofexternalities associated with externalities associated with

productiveproductiveactivities such as transport is activities such as transport is

thereforethereforenot deducted from GDP figures.not deducted from GDP figures.

BADS IN TRANSPORTBADS IN TRANSPORT

Exhaust emissions, the additional delayimposed on other road usebrsy an extravehicle entering a busy street, noise, andaccidents are commonly cited examplesof ‘bads’ generated by the transportsector. But traffic congestion or noisecan also occur on railway lines, cycle paths, or at airports.

COMMAND AND CONTROL COMMAND AND CONTROL APPROACHAPPROACH

A regulatory, ‘command and control’ approach is one means of reducing externalities.

R e g u l a t i o n justified when ‘ e c o n o m i c ’ i n s t r u m e n t s feasible, as was the case until

recently with e l e c t r o n i c charging for road use.

COMMAND AND CONTROL APPROACHCOMMAND AND CONTROL APPROACH

ORTODOXA VS. HETEODOXA

ECONOMIC APPROACHSECONOMIC APPROACHS

PIGOU VS COASEPIGOU VS COASE

WELFARE ECONOMICS VS NEO-WELFARE ECONOMICS VS NEO-INSTITUTIONAL ECONOMICSINSTITUTIONAL ECONOMICS

PIGOVIAN TAXESPIGOVIAN TAXES

A ‘polluter’ can be required to ‘internalise’ a pollution externalityb y paying a tax or charge to reflect the additional costs to society from the externality. Imposition of such ‘Pigovian’ taxes, named in recognition of their first proponent, A.C. Pigou (1920), results in a socially optimal level of pollution. Apart from any administrative costs involved, a major drawback of Pigovian taxes is the difficulty

ofestimating the value, and hence the cost, of an - externality at the socially optimal level.

PIRGOVIAN TAXESPIRGOVIAN TAXES

This problem is currently almost intractablein the

case of ‘carbon’ taxes to reduce greenhouse emissions because there is no scientific consensus on the effect on the likely damage in local areas.

PIGOVIAN TAXESPIGOVIAN TAXES

Pigovian or ‘green’ taxes have attracted considerable attention in Europe in recent years because they offer a ‘double-dividend’. Not only do they correct market failure by reducing externalities to optimalel vels, but the revenue raised offers governments scope to reduce income, payroll and other taxes. All taxes reduce the community’sw elfare (the

socalled ‘deadweight loss’) because they discourage the economic activity being taxed.

PIGOVIAN TAXESPIGOVIAN TAXES

Where action is taken, it is important that all externalities, in all modes of transport (including public transport), are addressed. Otherwise, patterns of production and consumption will continue to be distorted, and there can be no guarantee that social welfare will be increased.

COSEAN RIGHTSCOSEAN RIGHTS

The Social Costs of The Social Costs of Transport:Transport:

Evaluation and Links with Evaluation and Links with Internalisation PoliciesInternalisation Policies

by Emile Quinetby Emile QuinetProfessor and Head, Economics and Social Professor and Head, Economics and Social

Sciences Department,Sciences Department,Ecole nationale des ponts et chaussées, Paris, Ecole nationale des ponts et chaussées, Paris,

FrancFranc

With the increasing concern for the With the increasing concern for the environment, the rising demand for environment, the rising demand for transport and the development of transport and the development of economic understanding in these economic understanding in these fields, a great deal of research is now fields, a great deal of research is now being done on evaluating the social being done on evaluating the social costs of transport, a situation which costs of transport, a situation which justifies a general reviejustifies a general revie