DP59 The Fundamental Theorem of Road User Charges

Author(s): David M G Newbery
Publication Date: April 1985
Keyword(s): Average Cost, Road Damage, Road User Charges, Social Marginal Cost
JEL(s): 615
Programme Areas: Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=59

Highway Authorities are divided as to whether to charge road users the average cost of road maintenance or the social marginal cost of road use, which includes not only the extra maintenance costs, but also the increased vehicle operating costs attributable to the road damage caused by vehicle passage. The Fundamental Theorem states that in a steady state with a consistent (but not necessarily optimal) maintenance policy the two concepts are identical for zero traffic growth on uncongested roads for a wide class of road damage and vehicle operating cost functions, and approximately equal in other cases.