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A Sustainable Urban Transport System: The Case of Tradable Entry Permits

 Evy Crals and Lode Vereeck (2005)

Urban transport is a significant part of total mobility. Suburbanization, reduction of urban density, the increase of car ownership and the expansion of the road network have made the car the prevailing urban transport mode. This has caused not only congestion, but also safety and environmental problems. Since the present road supply does not meet the demand, a reduction of the use of private cars in the city is a possible policy option. To this end, transport and environmental economists are developing more sustainable urban transport systems. Their focus is mainly on pricing mechanisms. Internalizing the congestion externality by means of tolling was already recognized by Dupuit (1844) and developed by economists like Pigou (1912) and Knight (1924). Since the Kyoto Protocol, however, there is a keen social, political and scientific interest in tradable permits. In a system of tradable permits, the regulatory authority determines a cap on externalities and distributes a corresponding amount of permits. This cap can be set equal to, for example, the road capacity in the city centre. Trading of permits will establish, enforcement problems set aside, a market price. Similar to tolls, permit prices give road users a financial incentive to reduce car use. In this article, a system of tradable entry rights in a city centre is designed and the various possible (side-)effects are discussed. Next, it is reasoned why the system is preferable to tolling or road pricing systems such as the congestion charging scheme in London. Finally, this analysis shows that tradable entry rights can be a useful instrument, but that its success is heavily dependent on the transaction costs of the scheme, which in turn depend on its design.

in: C.A. Brebbia (ed.), Urban Transport XI, Southampton: WIT Press, p. 301-312. ISBN 1-84564-008-x

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