Discussion of Road Pricing

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by congestion, this increases the cost of motoring on congested roads; internalising the external costs that congestion imposes, particularly at peak periods. Thus, the MPC curve shifts left to MPC + user charge. The cost of driving on congested roads rises, P1 to P2 and quantity demanded of road journeys falls to the socially efficient level, i.e. Q2, where MSC = MSB. The charge can be varied at different times of day and on different roads, to address the problems of peaking that is responsible for much of the traffic congestion at peak periods on the most congested routes. In addition, the funds raised from road pricing can be hypothecated and used to fund improvements to alternative modes.

However, setting the user charge at the right level can be a problem because information failures exist, i.e. it is difficult to value the costs of congestion for which there is no market price; e.g. external costs of congestion, such as increased atmospheric pollution; it is also ...

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