Econometrica: Mar, 1988, Volume 56, Issue 2

Road Damage Externalities and Road User Charges

https://doi.org/0012-9682(198803)56:2<295:RDEARU>2.0.CO;2-H
p. 295-316

David M. Newbery

Vehicles on uncongested roads damage the pavement and advance the date at which repairs are necessary. Recent empirical work has identified another potentially more important social cost, for the damage to the pavement raises the operating costs of subsequent vehicles, and these operating costs may be an order of magnitude larger than the road maintenance costs. The paper develops a theory to handle this newly identified externality and establishes a remarkable result. If roads are repaired when they reach a predetermined critical condition (not necessarily optimally set) and if road damage is fully attributable to traffic, then in steady state with zero traffic growth the average road damage externality is zero, and the average marginal social cost of road use is equal to the average road maintenance cost. The result holds for arbitrary road damage and vehicle damage functions. Recent empirical studies reveal that weather accounts for a significant fraction of road deterioration, and in this case the road damage externality is no longer exactly zero, but is quantitatively negligible. The appropriate road user charge now only recovers the fraction of damage attributable to traffic.