Marginal Social Cost Research Articles

Research on the Urban Transportation Development in Our Country Based on the Traffic Congestion Pricing

With the development and realization of industrialization and urbanization in the world, urban traffic volume grows rapidly; many big cities face more and more serious traffic problem. As a mean of traffic demand management, traffic congestion pricing has important significance in theory and practice. Traffic congestion pricing can counteract external diseconomy caused by network congestion, and the price of congestion is tantamount to the difference between social marginal cost and private marginal cost. This paper analyzes the economic theory of congestion pricing. Combined the effect of traffic congestion pricing that implemented in the developed countries, it researches the influence of urban transportation development in our country in the future based on the implementing congestion pricing.

Carbon emission values in cost benefit analyses

New infrastructure projects may affect CO 2 emissions and, thus, cost benefit analyses for these projects require a value to apply for CO 2. This may be based on the marginal social cost of emissions or on the shadow price resulting from present and future policies. This paper argues that both approaches are necessary, but for cost benefit analysis of infrastructure projects the latter should be the primary tool. A series of complications arise when applying this principle in practice. These are discussed in the paper. Even if the complications make the implementation of a shadow price approach difficult, we argue that the approach still is preferable to a social cost approach.

Noise Charges in Road Traffic: Pricing Schedule Based on the Marginal Cost Principle

One way of mitigating the negative effects of noise from road traffic is to include the external cost of noise in a road charging system. This study shows how standardized calculation methods for road traffic noise can be used together with monetary estimates of the social cost of noise exposure to calculate charges based on the social marginal cost. Using Swedish data on traffic volume and individuals exposed to road noise, together with official Swedish monetary values for noise exposure, we estimate road-noise charges for cars and heavy vehicles.

The European Road Pricing Game: How to Enforce Optimal Pricing in High-Transit Countries Under Asymmetric Information

A federal government tries to force local governments to implement welfare optimal tolling and investment. Welfare optimal tolling requires charging for marginal external costs. Local governments have an incentive to charge more than the marginal social cost whenever there is transit traffic. We analyse the pricing and investment issue in an asymmetric information setting where the local governments have better information than the federal government. The case of air pollution and of congestion are discussed. © 2013 LSE and the University of Bath

Maximizing the Efficiency of Greenhouse Gas Related Consumer Policy

Consumer policy approaches regarding green products and solutions can be differentiated by their main focus. “Green positioning” is basically targeted at environmentally aware consumers, while “efficiency-focused positioning” concentrates on the efficiency gain of the product or solution, targeting the whole society, regardless of consumers' environmental awareness. The paper argues that the scope and total environmental benefit can be increased if green products or solutions are promoted in different ways, not only as “green” but also based on other arguments (like cost-efficiency, return on investment, etc.). The paper suggests a model for improving the efficiency of greenhouse gas (GHG)-related consumer policy. Based on the marginal social cost curve and the marginal private cost curve, different (green, yellow, and red) zones of action are identified. GHG mitigation options chosen from those zones are then evaluated with the help of profiling method, addressing the barriers to implementation. Profiling may help design an implementation strategy for the selected options and make consumer policy more effective and acceptable for mass market. Case study results show three different ways of positioning of GHG-related consumer policy in Hungary from 2000 and give practical examples of profiling, based on the latest marginal social cost curve and the contemporary energy saving policy of the state regarding the residential sector.

Optimal Taxation of Education with an Initial Endowment of Human Capital

Bovenberg und Jacobs (2005) und Richter (2009) leiten das Bildunseffizienztheorem her: In einem zweitbesten Optimum ist die Bildungsentscheidung unverzerrt, wenn die Funktion, die den Bestand an Humankapital beschreibt, uber eine konstante Elastizitat in Bezug auf Bildung verfugt. Diese Annahme lasse ich fallen. Der Haushalt erbt einen Anfangsbestand an Humankapital, was dazu fuhrt, dass die vorgenannte Elastizitat steigend ist. In einem Ramsey-Modell der optimalen Besteuerung mit zwei Perioden zeige ich, dass das Bildunseffizienztheorem nicht gilt. In einem zweitbesten Optimum gilt, dass der abdiskontierte soziale Grenzertrag kleiner ist als die sozialen Grenzkosten. Der Haushalt uberinvestiert in Humankapital relativ zur erstbesten Losung. Die Regierung subventioniert effektiv den Ertrag der Bildung.

Economic efficiency of alcohol policy.

Economic efficiency of alcohol policy.

Social Optimality with Resource Depletion: An Investment Project Valuation Model

The core objective of this research is to arrive at the optimal social extraction path on an investment project level reaching dynamic social optimality with resource depletion, in contrast to the traditional benefit-cost criterion of project feasibility. The focal argument is that marginal social benefits, at equilibrium, must strictly exceed marginal social cost, at equilibrium, in order to correct for historical failures and expected cumulative environmental disturbances away from the optimum social extraction path. A dynamic optimization model is proposed based on maximizing the generation of social capital for a given transversal-free project cycle whereby social surplus includes environmental factors related to resource depletion and environmental sustainability. This is based on upper-bound and lower-bound system failure of environmental sustainability constraints, in addition to private financial payoffs from a given supply of capital. The main assumption is that social surplus can be formulated as an aggregate likelihood function for private financial returns augmented to produce additivelyseparable social utility levels pertaining to the micro-sustainability of physical capital resources at an investment project level. An upper sustainability constraint on resource depletion ensures lack of resource over-depletion beyond the socially efficient rate, and a lower sustainability constraint ensures availability of critically needed input resources for an efficient production level. Both constraints are treated in dynamic optimality with the objective of maximizing the social surplus from an investment project. Atl Econ J (2010) 38:371–373 DOI 10.1007/s11293-010-9227-1

Book Reviews

Book Reviews

Social marginal cost pricing and second best alternatives in partnerships for transport infrastructures

According to the economic theory, if all the first-best conditions are met, social optimality involves the prices to be set equal to social marginal costs. When it is not possible to set prices equal to social marginal costs, due to the presence of constraints within the transport sector or distortions elsewhere in the economy, the theory suggests corrections to the SMC principle (second-best alternatives). But the implementation of second best alternatives can give rise to serious problems when transferred from theory to practice. This chapter will discuss in particular the problems that might rise when investment cost are included (totally or partially) in the social marginal costs rules, and in particular when private operators are involved.

Applying social marginal costs pricing to the road sector

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.

Applying social marginal cost pricing in rail PPPs: Present state, drawbacks and ways forward

The application of social marginal cost pricing (SMCP) in PPP's in the railway sector faces several challenges. We examine in detail the practical applicability of SMCP in railway PPPs from the perspectives of cost accounting and effectiveness of SMCP towards the allocative efficiency goal, addressing the likely drawbacks in conciliating the welfare objectives of SMCP with the objectives of project financing (cost recovery) and value for money that justify the realization of PPP's. To this end, we combine theoretical analysis with the observation of empirical results of a case study. We split the analysis per type of private service provision, which can be for service operation or infrastructure management. For infrastructure management, we recommend splitting the operator remuneration and the track access charges. For service operation, we argue that the correct decision on source of funding of the service operator should depend on the characteristics of the contract.

Transport pricing and Public-Private Partnerships in theory: Issues and Suggestions

This chapter offers a theoretical examination of the following questions: what are the issues that arise when Social Marginal Cost Pricing is to be incorporated in Public-Private Partnerships (PPPs); and how may these issues be dealt with? We first briefly discuss Public-Private Partnerships in transport: what are the defining characteristics and what are the main types that exist in the different modes of transport? Next we consider the economics of Public-Private Partnerships, in particular from the viewpoint of incentives. Subsequently we identify and examine the issues that arise when Social Marginal Cost Pricing is to be incorporated in PPPs as a regulation with regard to pricing in the transport sector. Lastly, we investigate the possibilities of resolving these issues.

The cost of second best pricing and the value of risk premium

Private provision of public infrastructure (PPP) is meant to give incentives to increased efficiency in construction as well in operation and maintenance of the infrastructure e.g. within the transport sector. Efficiency is not only (private) economic efficiency, but also social efficiency e.g. social marginal cost pricing of use of the infrastructure. Is it possible to design contracts concerning payment mechanisms and financial instruments for transport infrastructure that will stimulate social efficiency and optimal allocation of risks between parties? The paper discusses whether different targets can be met and whether compromises may lead to acceptable second best solutions. PPP implies an opportunity to let the user-payment give desired incentives in the form of Social Marginal Cost Pricing (SMCP). A PPP project is a set of contracts and agreements between several parties, including the Government, the private contractor, subcontractors, banks and infrastructure users. These contracts should be designed to give the right incentives to the parties to achieve optimal risk allocation and utilising of resources. Long contract-periods are a common feature of PPPs. The paper examines the way that financial solutions should be designed to achieve the goals for the PPP-projects concerning economic and social efficiency. The expected size and variation of the income stream from the project will influence the loan conditions offered by banks concerning interest rates, guarantees and repayment and also the ability to attract investors. The balance between equity and loans again influences the conditions of the loans. An additional problem is asymmetric information between parties. The private contractor usually knows more about the task than the Government (hidden knowledge), and the Government cannot have full knowledge of the efforts of the contractor (hidden actions).

Violation or strengthening of the self-financing doctrine at international airports by SMCP funded PPP schemes?

International airports are among the few examples of transport infrastructures which can well achieve self-financing. The growing interest of private companies in airport construction and operation is the visible testimony to this fact. However, the financing structures of airports are complex, involving not only traffic, passenger and goods handling, but also non-aviation services, such as retail, car parking or intermodal facilities. The integration of social marginal cost pricing schemes into this organizational structure according to the strategic plans of the European Commission, however, is challenging. This paper investigates whether they comply with a second strategic policy objective at European and national level, which is to foster public–private partnerships (PPPs) in transport financing in terms of full cost coverage, risks and incentives. The cases analysed in this paper deal with two sites with very different characteristics: Munich Airport which has been publicly operated since 1991 and the Bulgarian airports Varna and Burgas, which have been managed since 2007 by one concessionaire and whose planning and future development is being accomplished with private capital. The results of both cases showed that self-financing is possible in case congestion costs are considered in the SMCP schemes, and given that air traffic growth rates return to the significant levels prior to the economic crisis. The chapter will discuss the legal implications of congestion pricing at European airports which are violating current EC legislation, as well as the impact of alternative pricing schemes on the environmental performance and technological innovation in aviation.

Optimal Road Capacity Building: Road Planning by Marginal Cost Pricing

The purpose of this study is to propose a new road planning and financing scheme based on short-term social marginal cost pricing that facilitates the establishment of optimal road standards in the long-term. We conducted a simulation analysis based on the proposed planning scheme and observed that the simulation calculated the optimal road capacity in the future, and thus proved that the new planning scheme is feasible.

Solution Methods for Robust Pricing of Transportation Networks under Uncertain Demand

Toll prices on traffic networks have been traditionally determined using a single expected demand value or deterministic demand supply relationships. Previous work by Gardner, Unnikrishnan, and Waller (2008) show that marginal social cost prices obtained using the expected value of demand can significantly deteriorate system performance especially when the actual system state deviates from the planned forecasted conditions. Determining the globally optimal tolls which are resilient to demand uncertainty entails a significantly high number of system performance evaluations which is a computationally intensive process. This work presents two practical methods to arrive at near optimal tolls – single point approximation methods and multiple point inflation/deflation approximation methods – and compares their performance in terms of computational efficiency and proximity to the optimal solution with two other commonly used meta-heuristics – Genetic Algorithm and Adaptive Simulated Annealing. Computational tests reveal that inflation/deflation methods can provide “near to optimal solutions” using a lower number of system performances in comparison to the meta-heuristics and single point approximation methods.

The Cost of Primary Care Doctors

Research Objective: This study offers a novel approach to workforce planning in the physician market. Rather than projecting the future demand for physician services, a human capital model is used to estimate the societal cost of producing a physician service. The socially optimal workforce is one at which (at optimal practice scale), the societal cost of producing a physician service is equal to the societal benefit obtained from the service.Study Design: Physician human capital consists of two components: the underlying human capital (productivity) of those who become physicians and the job-specific investments (physician training) added to this underlying capital. The value of physicians' underlying human capital is estimated using a regression analysis of the National Longitudinal Sample of Youth (NLSY). For those in the survey who did not go on to become doctors, income over time is modeled as a function of a rich set of variables measured in youth, including family background, educational attainment and a range of high-school level performance tests. This equation is then used to forecast an age-earnings profile for doctors based on the characteristics in youth of those NLSY cohort participants who subsequently became doctors. Next, published estimates are used to measure the total cost (wherever paid) of investments in physician training. Combining these estimates, the social cost per primary care physician provided visit and Medicare relative value unit (RVU) is determined.Principal Findings: Physicians are drawn from the highest performing group of high school students. The earnings of comparable students who do not become doctors and the predicted earnings of would be doctors are substantially above the population mean. The opportunity cost of physician human capital is thus very high. The estimated societal cost per primary care physician visit is substantially higher than the average co-payment. The societal cost per primary care physician provided RVU is generally higher than the current Medicare compensation rate per RVU. The private return to primary care physician training is relatively low, in the range of 7-9%.Conclusions: At current levels of supply, the marginal social costs of primary care visits appear to be equal to or greater than marginal social benefits of many primary care services. In considering expansions of primary care capacity, it may be efficient to increase the use of complementary, lower-skilled practitioners.

Introduction to the feature issue on design and evaluation of road network pricing

Several pricing strategies are increasingly considered worldwide as possible options to mitigate the negative externalities of traffic congestion in urban networks, manage travel demand and improve urban living conditions. Despite the annotated beneficial impacts of congestion pricing schemes on network performance and social welfare, a range of problems still hinder many decision makers to apply these schemes in practice. Such problems typically relate to technical issues as well as the use of toll revenues to address equity concerns and increase public acceptability. At the same time, the plans for upgrading, expanding or constructing new road transport infrastructure to enhance regional accessibility and economic development are hampered by limitations on the allocation of available public funds. This situation has motivated the development of suitable privatization mechanisms to allow the construction and operation of road infrastructure from profit-maximizing private firms, usually subject to constraints imposed by governments/regulators. The involvement of many different actors with diverse, often conflicting, goals and constraints, and complexities associated with realistic network implementation raise the need for devising innovative design and evaluation approaches for alternative road pricing schemes. This feature issue of Netnomics brings together original research, methods, state-of-the-art surveys and applications of pricing strategies in test and real-world road networks. Tsekeris and Voβ [6] provides an in-depth extensive review of the state-ofthe-art and describes methodological advances in the design and evaluation of road pricing. It stresses the need for considering a number of paradigm shifts from the two polar cases of marginal social cost pricing of traffic congestion and revenue-maximizing (monopolistic or competitive) private road pricing in

Design and evaluation of road pricing: state-of-the-art and methodological advances

This article provides an in-depth review of the state-of-the-art and describes methodological advances in the design and evaluation of road network pricing schemes. A number of paradigm shifts from the two polar cases of the marginal social cost pricing of road traffic congestion and revenue-maximizing road toll pricing are analyzed, as induced by the need to address realistic design complexities and constraints. The crucial role of the joint consideration of pricing strategies with optimal capacity provision and several network management measures is manifested and an integrated evaluation framework is suggested to incorporate a wide range of road pricing impacts into the scheme design process.