Transport economics Why is transport important?
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- External costs of transport
- Traffic congestion
- Loss of sites of scientific interest or historic sites
- Environmental damage from fossil fuel
- The value of external costs of road use
Larger fleets e.g. Savings on purchases of equipment, fuel etc. Savings on maintenance. More passengers e.g. More efficient use of vehicles. Fewer employees per passenger/tonne freight. In addition a higher market share will allow a transport service provider to rationalise the use of its fleet and cut administrative overheads. Economies of scale can be measured in various ways, for example: Cost per vehicle km Cost per passenger km Cost per tonne km Passengers per employee Tonnes per employee Cost per vehicle Load factors become important in passenger and freight transport. The load factor is the proportion of seats/volume actually taken up. In the airline industry fixed costs are again very high (the cost of hiring the aircraft) and so it is important to fill the aircraft even if the contribution of the marginal passenger is only a little over the marginal cost of taking them. This often leads to price discrimination and is examined later. External costs of transport12 It is possible to identify numerous external costs; Air pollution - particularly from road transport. CO2, lead etc. Noise - particularly a local problem, from nearby roads, railways or airports. Human health effects - from reduced exercise as well as above. Damage to buildings - by traffic vibration. Traffic congestion - this delays travelers and raises the costs of business by longer hours and higher fuel costs. Scenic degradation - transport systems can ruin the natural beauty of an area, also they can reduce the earning potential of an area. Linked to this destruction of wildlife. Loss of sites of scientific interest or historic sites - to ease traffic flow or provide infrastructure routes are often chosen that include the cost of the loss of such sites, e.g. Twyford down, and the Newbury bypass. Accidents - loss of life, costs of medical care and damage to property. Breakdown of communal values - through separation of people into private transport and possibly by busy roads e.g. Bentley. Environmental damage from fossil fuel - Transport accidents e.g. Amoco Cadiz and effect of oil exploration. Global warming. Such problems have led to calls for a change in policy on the part of the government. The economic argument behind the Commission recommendations is the existence of negative externalities. The estimated value of such external costs due to transport in the UK has been put at between £9.9 and £18.3bn. Estimates for the EU have been put at 2% of GDP due to traffic congestion, accidents a further 1.5% and air pollution 0.6% - a total of 4.1% of EU GDP. This is over 320 billion Euro’s. A similar figure has been estimated for the US. These estimates look increasingly optimistic. Certainly transport accounts for a significant proportion of CO2 emissions. 
The value of external costs of road use Valuing external costs is very difficult. In cost-benefit analysis it is usual to set the value at what people are prepared to pay to avoid the external cost. This tends to reflect the ‘ability to pay’ rather than a ‘willingness to pay’ (so high income areas will suggest higher costs in surveys) and is subject to great inaccuracy due to measurement difficulties. We can measure the ‘ex-post’ costs of externalities - the actual costs to society of the externalities much more easily. The table below gives Mumford’s estimates for 1999. 
Congestion costs dominate and refer to higher delivery costs and lost time. Most of the costs in the table occur in urban areas and so while the value of £25bn implies a cost of 5.6p per vehicle km the distribution of these costs is not at all uniform. The next two tables show how widely the differences in external costs vary between locations and use. These are only estimates and they are subject to significant estimation error. Even taking this into account they show that driving in built up areas at peak times imposes significantly (50 times) more costs than driving on motorways or in rural areas for cars with an even bigger differential for HGV’s. 
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