4: Why are Efficient Transport Policy Instruments so Seldom Used?

More and more roads are congested. This rising demand for road space exceeds the given supply; the excess demand makes bottlenecks an everyday experience for an ever increasing number of road users.

The solution is to set an adequate price on the scarce resource of road capacity. More precisely: marginal congestion cost road pricing needs to be used¹. To efficiently overcome the excess demand occurring on the roads, pricing has to be geared to the additional users (rather than to some average). This pricing scheme performs two specific functions. Firstly, it reduces demand wherever appropriate, i.e. when the value of using the roads is lower than the equilibrium congestion price. Secondly, it expands the supply of roads wherever appropriate, i.e. when the investment cost of more road space is lower than the equilibrium congestion price. Thus, marginal cost pricing takes into account the material, environmental and psychological costs (e.g. the amount of noise produced).