This paper sets out a framework for determining optimal prices for road use which can in turn be used as a baseline for assessing the road companies' pricing policies. Road prices in total should cover all economic costs. This includes long run marginal costs which include a normal rate of return on capital invested in roads. However prices should not exceed this level. The requirement to earn a financial return on the capital invested in roads raises issues about the valuation of existing infrastructure. The paper argues that this is largely a sunk cost. Prices based on long run marginal cost will be higher in corridors and areas where significant investment is required in the near future than areas where existing capacity is adequate and traffic growth is low. Network pricing theory was investigated and the paper explains why its implications for road pricing were found to be relatively insignificant. The paper argues that ultimately, fully disaggregated pricing, where a separate price applies for using each road link, in addition to a small access charge, will result in the clearest use and investment signals to road providers and road users. In the short to medium term, achievement of fully disaggregated pricing will be constrained by technology limitations, public acceptance, and cost. (A)
Abstract