Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154925
Authors: 
Roson, Roberto
Year of Publication: 
1998
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 67.1998
Abstract: 
A well-known principle of welfare economics states that an efficient resources allocation can be achieved in a competitive economy when market prices are in line with social marginal costs. When applied to the transport sector, this implies that the price of the various transport modes should be made equal to the sum of marginal production and external costs, like congestion, accidents, pollution, and road maintenance. It is sometimes argued that the internalisation of external costs would bring about a change in demand patterns with a shift towards public transport and cleaner modes. But, public transport is already favoured by a discriminatory fiscal treatment. Whereas public services are normally (heavily) subsidised, private transport is taxed in several ways and, in some countries, quite substantially so. The application of the ìoptimal pricingî principle, therefore, critically depends on how the subsidisation of public services is interpreted. This paper addresses the issue of optimal pricing of urban transport, using different hypotheses about the treatment of public services. After reviewing some traditional arguments in favour of public transport subsidisation, a new approach, based on uncertainty and option values, is discussed. The implications of this approach are investigated by means of an applied model, where optimal prices for urban transport services in the city of Bologna are computed under alternative assumptions.
Subjects: 
Urban Transportation
Option Value
Optimal Taxation
Modal Choice
JEL: 
R48
H21
Document Type: 
Working Paper

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