Sunday, February 20, 2011

Urban Road Transportation Externalities: Costs and Choice of Policy Instruments

Urban Road Transportation Externalities: Costs and Choice of Policy Instruments: "
Abstract: Urban transportation externalities are a key development challenge. Based on the existing literature, the authors illustrate the magnitudes of various external costs, review response policies, and measure and discuss their selection, particularly focusing on the context of developing countries. They find that regulatory policy instruments aimed at reducing local air pollution have been introduced in most countries in the world. On the other hand, fiscal policy instruments aimed at reducing congestion or greenhouse gas emissions are limited mainly to industrialized economies. Although traditional fiscal instruments, such as fuel taxes and subsidies, are normallyintroduced for other purposes, they can also help to reduce externalities. Land-use or urban planning, and infrastructure investment, could also contribute to reducing externalities; but they are expensive and play a small role in already developed megacities. The main factors that influence the choice of policy instruments include economic efficiency, equity, country or city specific priority, and institutional capacity for implementation. Multiple policy options need to be used simultaneously to reduce effectively the different externalities arising from urban road transportation because most policy options are not mutually exclusive.
For example, Jakob, Craig, and Fisher (2006) estimate the cost of local air pollution from road transportation in Auckland, New Zealand at NZ$58.4 million (or 0.2 percent of the region's GDP) in 2001.

Traffic congestion is another key source of urban transportation externalities. ESCAP (2007) estimates the costs of traffic congestion in Bangkok, Kuala Lumpur, Jakarta, and Manila to be 2.1, 1.8, 0.9, and 0.7 percent of GDP, respectively, in 1996. Zergas (1998) estimates a congestion cost of US$286 million (0.59 percent of national GDP) for Santiago, Chile in 1994 without including the marginal increase in fuel consumption and air pollution caused by congestion. Schrank and Lomax (2005) estimate that total congestion costs in the 68 major urban regions in the United States amounts to $78 billion (0.84 percent of national GDP) in 1999. These estimates illustrate that the relative economic loss due to traffic congestion in many cities in the developing countries is even higher than that in cities in industrialized countries.

Traffic accidents cause hundreds of thousands of deaths and millions of injuries each year, as well as billions in financial losses. The costs vary across countries depending upon the cost assigned to medical expenses, lost productivity, and loss of life. ADB and ASEAN (2007) estimate that costs of traffic accidents amounted to 2 to 3 percent of national GDP in South East Asian countries during the 2001–03 period, with the exception of Singapore and Brunei, where the costs are much lower (0.5 to 1.2 percent of GDP). Mohan (2002) finds that accident costs are higher in high income countries and lower in low income countries. For example, while accident costs accounted for 4.6 percent of GDP in the United States in 1994, it accounted for only 0.3 percent of GDP in Vietnam in 1998. The higher accident cost in developed countries is mainly due to the higher value attached to productivity and higher health care costs. Because the cost of life lost in an accident is higher than the value of time lost to traffic congestion, the external costs of accidents tend to be higher than the external costs of congestion. In 2006, accident costs accounted for $164.2 billion compared to $67.6 billion for congestion in the United States (Cambridge Systematics 2008).

by Govinda R. Timilsina and Hari B. Dulal
World Bank Research Observer published by Oxford University Press
Volume 26, Issue 1; 2011; pages 162-191
doi: 10.1093/wbro/lkq005

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