Efficient Pricing in Transport : The Gap between Theory and Practice

Abstract

Many transport economists agree on the need for ‘efficient pricing’ in transport, as this would improve allocative efficiency and raise social welfare. Although the principle of efficient pricing is gaining ground in many countries, up to now it has been applied only rarely because of strong social resistance. But how can so many people be opposed to a principle which aims to increase social welfare? In this paper, I explore the major reasons underlying this paradox and examine the validity of arguments for and against efficient pricing. It appears that most arguments against efficient pricing can be refuted easily. However, everything stands or falls on the basic assumption that efficient pricing will increase social welfare, the validity of which appears to be practically impossible to prove. The main cause of this difficulty is the lack of complete information on the welfare effects of efficient pricing.