Applying social marginal costs pricing to the road sector

Abstract

This chapter, following the results of the case studies analyzed in the Enact project, will identify and analyze the implications of the possible application of SMCP in PPP’s in the road sector. The main issues analyzed include SMCP revenue formation and its ability to finance the PPP. The paper will focus on market and competition issues like: 1) the problems due to mispriced substitutes; 2) the interdependencies between the tolls and the capacity of different road infrastructures when these are competing for the same demand; 3) since short run social marginal costs do not repay for the investments costs (except in special cases), in the case tolls should cover also the investment costs this will lead to totally different pricing schemes between roads in a same area, with problem of demand shift toward cheaper existing infrastructures, therefore increasing the problem of cost recovery. The incentives caused by the introduction of prices based on SMC’s are also investigated.