The document discusses negative and positive externalities, with a focus on those associated with transportation. It describes how negative externalities from transportation, such as exhaust emissions, noise, accidents, and traffic congestion, impose costs on society. However, GDP is not reduced to account for these external costs. The document examines different approaches to reducing transportation externalities, including command-and-control regulation and Pigovian taxes, which aim to make polluters internalize the external costs of their actions. It notes challenges in estimating externality values and tax levels.

1. TRANSPORTS NEGATIVE EXTERNALITIES VS. POSITIVE EXTERNALITY

2. NEGATIVE EXTERNALITY VS. POSITIVE EXTERNALITY Externalities or ‘spillovers’ are difficult to define in a non-technical way. But the concept is a familiar one. In essence, a negative externality occurs when one individual engages in na activity that imposes costs on another, and the victim cannot normally be compensated for them through the market mechanism. The classic example of such a ‘bad’ is a smoky factory that harms a laundry next door to it Positive externalities , on the other handp,r ovide benefits to those affected by them.

3. GOODS AND BADS IN TRANSPORT Transport services themselves are a ‘good’. They are an essential input into the production process and personal consumption. [...] By convention, however, national-income accounts do not include non-traded items .

4. GOODS AND BADS IN TRANSPORT The cost to the community of externalities associated with productive activities such as transport is therefore not deducted from GDP figures.

5. BADS IN TRANSPORT Exhaust emissions, the additional delay imposed on other road usebrsy an extra vehicle entering a busy street, noise, and accidents are commonly cited examples of ‘bads’ generated by the transport sector. But traffic congestion or noise can also occur on railway lines, cycle paths, or at airports.

6. COMMAND AND CONTROL APPROACH A regulatory, ‘command and control’ approach is one means of reducing externalities. R e g u l a t i o n justified when ‘ e c o n o m i c ’ i n s t r u m e n t s feasible, as was the case until recently with e l e c t r o n i c charging for road use.

7. COMMAND AND CONTROL APPROACH ORTODOXA VS. HETEODOXA

8. ECONOMIC APPROACHS PIGOU VS COASE WELFARE ECONOMICS VS NEO-INSTITUTIONAL ECONOMICS

9. PIGOVIAN TAXES A ‘polluter’ can be required to ‘internalise’ a pollution externalityb y paying a tax or charge to reflect the additional costs to society from the externality. Imposition of such ‘Pigovian’ taxes, named in recognition of their first proponent, A.C. Pigou (1920), results in a socially optimal level of pollution. Apart from any administrative costs involved, a major drawback of Pigovian taxes is the difficulty ofestimating the value, and hence the cost, of an - externality at the socially optimal level.

10. PIRGOVIAN TAXES This problem is currently almost intractablein the case of ‘carbon’ taxes to reduce greenhouse emissions because there is no scientific consensus on the effect on the likely damage in local areas.

11. PIGOVIAN TAXES Pigovian or ‘green’ taxes have attracted considerable attention in Europe in recent years because they offer a ‘double-dividend’. Not only do they correct market failure by reducing externalities to optimalel vels, but the revenue raised offers governments scope to reduce income, payroll and other taxes. All taxes reduce the community’sw elfare (the socalled ‘ deadweight loss’) because they discourage the economic activity being taxed.

12. PIGOVIAN TAXES Where action is taken, it is important that all externalities, in all modes of transport (including public transport), are addressed. Otherwise, patterns of production and consumption will continue to be distorted, and there can be no guarantee that social welfare will be increased.

13. COSEAN RIGHTS

16. The Social Costs of Transport: Evaluation and Links with Internalisation Policies by Emile Quinet Professor and Head, Economics and Social Sciences Department, Ecole nationale des ponts et chaussées, Paris, Franc

17. With the increasing concern for the environment, the rising demand for transport and the development of economic understanding in these fields, a great deal of research is now being done on evaluating the social costs of transport, a situation which justifies a general revie