Efficiency and equity considerations in road pricing

Abstract

Equity considerations are particularly important for the appraisal of road pricing schemes. We discuss and classify the most relevant aspects of equity in this context, and set out inequality measures from economics that may be used as outcome indicators with respect to these equity objectives. Road pricing is inherently a second-best problem due to the link between work trips and the labour market, where distortionary taxation exists. Consequently, efficiency and distributional issues both need to be considered simultaneously. To design the road pricing scheme in this case, it is suggested to solve the constrained optimisation problem of maximising welfare in the transport system as computed from a transport model, subject to relevant equity indicators reaching their target levels.