Distributional Effects of Infrastructure Pricing Rules



Distributional Effects of Infrastructure Pricing Rules

Authors

A Kopp, OECD/ECMT, INT

Description

Distributional effects of infrastructure pricing rules
The paper investigates the potential conflict between efficiency prices for infrastructure use and distributional objectives. It identifies a mechanism for the resolution of possible conflicts.

Abstract

The paper is motivated by the claim in political discussions that infrastructure pricing rules aiming at efficiency are politically unacceptable because of their income distribution effects.
We start by critically discussing the hypothesis that resistance against infrastructure pricing is due to its differential impact on high and low income households. This hypothesis is contrasted with recent empirical work on acceptability of the implementation of pricing measures, pointing to the misperception of infrastructure user charges being an arbitrary tax rather that a price for in infrastructure service.
The paper then discusses a charging system that is implemented as a quasi/market with the implication of user charges covering the full cost of the infrastructure services. It is shown that such a system is compatible with ?fairness? criteria discussed in the economics literature. Two cases are to be distinguished:
In case that an infrastructure facility suffers from a high level of congestion social marginal cost pricing will suffice to cover the full costs of the facility. No distributional issue in the sense of the fairness criteria arises here.
With no or low levels of congestion the quasi-market concept requires that social marginal cost pricing is coupled with some form of fixed charge to cover full cost. Here an equal fixed charge can be shown to discriminate against low income users or users with low levels of demand. A scheme of differentiated fixed charges is shown to be able to resolve the conflict between efficiency and distributional fairness. The fairness norm is based on the notion that no individual would want to change her or his role with any other user of the infrastructure facility, given the levels of demand and the implied contribution to the wear and tear of the facility by the individuals.

Publisher

Association for European Transport