Discuss the pros and cons of implementing a nationwide road pricing scheme The introduction of a nationwide road pricing scheme has been extensively considered in the UK. Early deliberations in the ‘Smeed Report’ implemented road pricing in 1962 using a colour coding system. With computing and telecommunications changes in recent years there is potential for the road pricing scheme, which was a component of the labour manifesto in 2005 using satellite navigation to track vehicle activity, to be developed and implemented. The concept of introducing a market for roads through road pricing has become a highly discussed topic due to the complexity of the operation and how it could revolutionise the actions of drivers in the future with a target of tackling congestion. There are different types of road pricing including cordon, distance and area schemes. The scheme proposed by transport secretary Alistair Darling in 2005 was a form of road pricing called distance and area pricing which uses tracking technology in cars to record driving and then charge between 2p and £1.34 per mile depending on the level of congestion and time of day. The reduction of congestion would be beneficial to the environment, ‘This is due to the fact that better traffic flow causes less emissions per kilometre driven. Emissions such as volatile organic compounds (VOC) and carbon monoxide (CO) (both are main components in smog) are 250% higher at congestion than when the traffic flows’. This means that less traffic jams would cause fewer emissions as a secondary benefit. The economic rationale for congestion is ‘Tragedy of the Commons’ which is a dilemma arising from overconsumption of a common good which is in finite resource, for example roads. The over-utilization of roads occurs from the divergence between marginal social and marginal private costs. This is shown in the graph below, the divergence between the social welfare maximising point of consumption Q* and the amount consumed Q is the extra quantity consumed because the agent does not realise the real cost (P s) so too much is consumed. A tax to allocate the resources can be set so that P* is paid by the agent and Q* is demanded if the tax set equal to the gap between MSC and MPC. Market failure can be corrected if the marginal negative effect of the failure and also the total marginal cost of the abatement are known. There is also room for flexibility as the system is electronic therefore charges can be altered easily. The government can decide on an optimal flow level of traffic and find out by testing the scheme to see what prices can result in it.
Above the maximum free flowing capacity of a motorway, the marginal social cost of an additional driver on a road increases the travel time for all drivers using the road. This cost (increased travel time) is not considered by the driver so the Marginal Private Cost is equal to zero. As long as the Marginal Private Benefit is higher than zero, commuters will use the motorway system. Another reason that congestion occurs is due to the high explicit fixed costs of owning a car. After purchase of a car, the next highest payment is insurance which increase by an average of £215 this year, and other fixed costs such as road tax. Variable costs such as petrol and maintenance are lower so after these high fixed costs have been paid for a car, there is an economic incentive to use it. Congestion is a deadweight welfare loss and is a big problem as ‘on a daily basis a quarter of main roads are jammed for an hour and there are between 200 and 300 incidents of major congestion.’ This amount of congestion can be put in monetary costs estimated by the European Union as 2% of annual GDP. The road pricing scheme could be a very efficient way of reducing congestion as it could separate drivers based on how much they value the journey derived from the price elasticity of demand which measures responsiveness of quantity demanded to a change in price. Drivers...
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