Abstract
This chapter presents a conceptual framework for pricing the important road use externalities of congestion and pavement wear and discusses the policy implications of doing so. It summarises a World Bank report by the author entitled `Economic Fundamentals of Road Pricing: A diagrammatic analysis'. A welfare analysis of congestion pricing concludes that the tolled, the tolled off and public transport users are all worse off unless they perceive that the revenues are channelled back to them. Optimal pricing, investment and durability are discussed. Optimal pricing, capacity and durability rules are introduced. The concept of indirect compensation is considered.