Reducing Urban Road Transportation Externalities: Road Pricing in Theory and in Practice

Urban road transportation creates several externalities, the most important of which are congestion (time delay and extra fuel consumption), accidents, pollution, and greenhouse gas emissions. Road pricing is widely promoted as a tool to reduce these externalities. Based on a review of theory as well as experience with existing schemes, this article draws four conclusions about urban road pricing: (1) the benefits of road pricing exceed the costs; (2) the benefits of congestion relief are larger than the benefits of improvements in environmental quality; (3) success depends in part, but only to a limited extent, on the presence of public transit and on how service is adjusted; and (4) the distributional effects and public acceptance of road pricing pose important challenges for policy design.