In 1920 Arthur Pigou in his book "The Economics of Welfare", proposed what has become a doctrine to treat cases where private and social cost diverge to each other. The method consists in taxing the agent that does not perceive the total social cost of his or her actions, in an amount equivalent to such external cost or externality. This method, now known as Pigouvian taxation, eventually reached the area of transportation economics in theform of "congestion road pricing". Since then, it quickly became the public policy tool most advocated by transportation specialists. In 1960, Nobel laureate Ronald Coase virtually destroyed Pigou´s theory in his article "The Problem of Social Cost". Nevertheless, his arguments had remained almost unnoticed by transportation specialist. The main purpose of the present article is to gather Coase's arguments to the transportation field. Thisis achieved through the revision of some empirical examples applied to this area of knowledge and research articles and models in the transportation literature where Coase´s arguments can be implicitly found. Principally, Coase argues that even in cases, such as transportation, when agents cannot be made liable for the externalities and thus, is inevitable to find a difference between private and social cost; imposing a Pigouvian tax will not necessarily drive the system to its optimum. He argues that, focusing in the correction of deviations between private and social cost distracts from the effects that the corrective measure to attain this objective may have, which may end up leading the system to a worse situation. The author calls for a change in the approach, "to examine the effect of a proposed policy change and to attempt to decide, whether the new situation would be, in total, better or worse than the original one". Consider for examplea transportation system within which is dispatched a critical medicine from a cheap to an expensive market. If a Pigouvian tax is imposed, the congestion will be reduced but, at the same time, the price of the medicine inthe importers market will rise and, eventually, somebody will die becauseof the impossibility to afford such medicine at the new prices. Despite efficiency in the transportation market was improved through the Pigouvian tax, the whole effect in the society is evidently worst. Obviously, if theeffect of congestion pricing in the medicines market is accounted for in the analysis of the tolls, they would be really optimally calculated. The problem is that, accounting for all collateral effects, is virtually impossible in practice. Despite the almost complete absence of Coases frameworkin transportation area, some evidence in the transportation literature implicitly supporting his arguments is described. Other issues analyzed in the article are the theoretical inconsistency of revenue recycling schemes usually considered in transportation literature; an analysis of the political viability of congestion pricing, regarding the fact that all users areworse off after road pricing; and that welfare economics are ultimately related to aesthetics and morals. For the covering abstract see ITRD E145999
Abstract