Road user charges, cost recovery and road-rail competition / P.J. Forsyth

Abstract

The question of how road users should be charged, to achieve economy efficiency, is examined. Several subsidiary questions are considered. The first concerns the measurement of marginal cost. It is concluded that many discussions in Australia underestimate marginal costs because they ignore congestion costs. A consequence of this is that the cost recovery problem is exaggerated. A second question concerns the importance of roadrail competition in setting road charges. To solve this, it is necessary to model railway behaviour - alternative plausible models of railway behaviour give widely divergent results. Current presumptions about the relative size of cross and own price elasticities, which are based on incomplete reasoning, overestimate the importance of the road-rail issue. Another question is whether revenues are equal to total measured cost, whether they determine current total expenditure (including investment), or whether current expenditure determines revenue. The costs of imposing revenue constraints depend on this. The fourth and fifth questions involve ; he charging structure - on different users and on different aspects of vehicle use. While Ramsey/Boiteux inverse elasticity rules are appropriate, current information is insufficient to allow their application with any confidence. A policy which is likely to minimise expected distortion cost is also a simple one. Users should be levied charges in proportion to marginal cost, and a mix of road charges (on registration and fuel) should be levied. Show more