Internal Ising The Social Costs Of Transport example essay topic

Transport management is now far more sophisticated than it was a decade ago. Transport activities generate a wide range of economic benefits. Between 2% and 4% of total OECD employment, for example, is derived from transport services, and an estimated 4-9% of GDP in the OECD area is attributable to spending by the users of transport (including expenditure on infrastructure). More than 10% of total household expenditure now goes to purchase transport services (OECD Publications / ECMT).

The balance of international payments is also strongly influenced by trade in transport equipment. Enormous changes have taken place in the transport sector in recent years. The most marked is its unprecedented growth. Both stock variables (fleet size, kilometres of road and rail infrastructure, and so on) and flow variables (number of trips taken, volume of goods transported, and the like) have expanded rapidly. The world's automobile fleet, for example, doubled between 1970 and 1990, to stand today at approximately 500 million vehicles. These numbers are expected to double over the next 20-40 years, although at a slower rate in OECD countries than in the past.

Substantial structural, changes have also taken place. For one thing, there has been a major shift in where transport growth is occurring. In 1950, 75% of all automobiles were located in the United States. Since then, the number outside the United States has grown by about 8% per year (Mackenzie Walsh 1990) with even more remarkable increases in some locations. In Athens, for example, car ownership burgeoned from 35,000 in 1964 to 650,000 in 1984, and is expected to be about 900,000 by this year (Glaoutzi Damianidias 1990). Most future growth in global vehicle stocks is projected to occur in the developing world, as the industrialized countries become increasingly saturated with vehicles, as the developing countries undergo urbanization and industrialization processes of their own, and as people there begin to realize their longstanding aspirations for more mobility.

There has also been a significant shift in the shares of different modes of transport. In the past twenty years, the volume of road freight traffic has doubled, while rail and waterway volumes have remained stable. In view of the rapidity of these changes, it is not surprising that transport problems are generating considerable political debate in most countries. The traditional approach used to be to step up the supply of services; increasingly, calls are being heard for policies that curtail demand. Whichever approach is preferred, much of the discussion centres on the so-called 'social costs' of transport. These costs derive from 'negative externalities', which occur when transport consumers / producers impose higher costs on society at large than they bear themselves.

Some of the economic benefits produced by transport are also 'external' in the sense that they accrue to economic actors beyond the original consumers / producers of the services in question. Although there is no conceptual difference in the basic definitions of external costs and benefits, different incentives are inherently at work in each case. Specifically, there are built-in might generate, thereby 'automatically' internalizing these effects in the form of lower prices or higher economic rents / profits. On the other hand, no similar incentive exists on the cost side. All of the incentives here work in the direction of avoiding additional costs, so government action will usually be necessary to force their internalization into transport decisions. That is why most of the debate about transport externalities focuses on costs rather than on benefits.

Of course, the economic benefits and costs of transport activities accrue not only to the transport sector itself, and the inter sectorial sharing of these impacts has become an important political issue in many countries. Lobbyists often argue, for example, that transport activities generate benefits for other sectors of the economy, which are not properly recognized (much of the debate about state participation in the financing of transport infrastructure is based on this view). And finally, because transport activities generate net economic benefits, society will usually be willing to accept that some externalities should be tolerated. On the other hand, externalities do change the point at which the costs of transport activities begin to outweigh their benefits, so these externalities should always be factored into transport decisions, even if they are not completely eliminated. What Size the Externalities? Much research has been carried out in recent years on the extent of the social costs of transport, and several order of-magnitude estimates are now available.

For example, it has been estimated that 16% of the citizens of OECD countries are routinely exposed to 'unacceptable' degrees of noise pollution from air, road and rail traffic, and as many as 50% are exposed to 'unsatisfactory' volumes. About half of all nitrogen oxide emissions come from motor vehicles. Petrol is still the source of half of total lead emissions to the atmosphere in OECD countries. It has also been calculated that road accidents cost the United States more in property damage, medical bills, lost output, and insurance costs per vehicle-mile travelled than the cost of petrol itself.

Expressed as a percentage of annual GNP, the social costs of transport tend to be concentrated around the following mean values: 2% for accidents; 0.3% for noise pollution; 0.4% for local air pollution; and at least 2% for congestion. Available evidence further suggests that most of these costs are derived from road transport. Policy Pros and Cons There is a wide range of policy options available to bring about internalization. One way might be to regulate the transport sector from harming third parties in the first place - there could, for example, be a prohibition on the sale of unleaded gasoline.

A second possibility would be to increase the price of transport services, in order to impose an extra cost on transport as a proxy for the value of the externality it causes. Excise taxes on motor fuel are one example of this approach. A third possibility would, involve the establishment of property rights for the externality, in the form of tradable permits. Market trading of these permits could then determine exactly where in the transport system the externality would be reduced. And finally, it is sometimes best to use a public information / institutional change approach as part of the policy. Economists tend to favour price-based approaches, such as taxes, on the grounds that the market should be allowed to determine how the externality could be reduced at least cost.

People who emphasize environmental or safety objectives, by contrast, tend to favour regulatory approaches because regulations seem to offer more certainty of reaching these particular goals. Conclusion The international dimension of transport externalities is also important. Countries worry that national programs designed to interna lise the social costs of transport will simply increase their own production costs, and that, unless competitor nations adopt similar policies, the competitive economic position of countries which interna lise unilaterally will be undermined. This remains a powerful political argument against unilateral internalization in some countries. Internal ising the Social Costs of Transport, OECD Publications / ECMT, Paris, 1994. J. Mackenzie and M.P. Walsh, Driving Forces: Motor Vehicle Trends and Their Implications for Global Warming, Energy Strategies, and Transportation Planning, World Resources Institute, Washington, DC, 1990. M. Glaoutzi and L Damianidias, 'Greece', in Jean-Philippe Barde and Kenneth Button (eds.

), Transport Policy and the Environment: Six Case Studies, Earths can Publications, London, 1990..