Policy Implications of Full Social Costing

Abstract

This article describes the application of full-cost accounting to transport decision making. Twenty transportation costs are identified, and cost estimates developed, for 11 modes under three travel conditions. Costs are categorized according to how they are distributed (internally or externally), whether they are fixed or variable, and whether they are market or nonmarket. The results indicate that transportation in general, and private motor vehicle use in particular, are significantly underpriced. The implications of this underpricing on economic efficiency, equity, and environmental impacts are discussed. Underpricing reduces economic efficiency and productivity by skewing market decisions away from an optimal allocation of resources. The existence of externalities indicates horizontal inequity and tends to be vertically inequitable to the extent that economically and physically disadvantaged people use private automobiles less than people who are more advantaged. Transportation underpricing increases pollution, land-use impacts, and other environmental impacts. Underpricing makes traffic congestion virtually unavoidable. Recommendations are provided for more efficient pricing and incorporating full-cost accounting into transport decision making.