This article is the second in a series of two articles dealing with road cost allocation and recovery.It provides an overview of (a) the criteria for and methods of road cost allocation, and (b) objectives and principles of road cost determination and recovery.
Since public roads are, as a rule, provided by central, provincial/regional and local authorities, governments normally recover the cost of road infrastructure from the general public and road users through (1) income tax, (2) indirect taxes, and (3) road user charges incorporated in the price of road transport inputs. Income tax (also known as direct taxation) is levied on the taxable income of individuals and firms, without having any traceable relationship with taxpayers’ benefit or use of public goods, such as road infrastructure. Indirect taxes are paid by the general public through goods and services they purchase, and are not directly related to tax payers’ income characteristics. Indirect taxes are levied in the form of (1) value added tax, (2) customs, excise and import duties, (3) commodity tax (such as on petroleum products and so-called luxury products), and (4) transaction tax (such as on transactions per credit card, certain written contractual agreements and land/fixed property transactions). Both direct and indirect taxation accrue as general public income from which the government may allocate a proportion to the provision and maintenance of roads at its discretion. User charges are levies paid by users of a product provided by a government or by a public enterprise. They are applied so that those who make use of and obtain the benefits of goods and services repay (or partially repay) the cost thereof to the government, for example, (1) road user charges, which generally take the form of tolls, vehicle licence fees, and fuel levies, and (2) travel fares charged for the use of public transport. (Note that not all vehicle licence fees and fuel levies represent user charges, they may also represent indirect taxes used as general government revenue.)Controversy arises over: (1) the amount of user charges (2) the basis of measuring user benefit (e.g., distance travelled, number of passengers, load mass, etc.) (3) differential treatment of different types of vehicles (e.g. different charges for light and heavy vehicles on toll roads) (4) an exact distinction or division between indirect taxes and road user charges (5) the proportional road cost responsibility of road users and non-road users.
In order to promote the efficient allocation of scarce resources, users or consumers of these resources should, if possible, bear the full and actual cost of their use or consumption. This would ensure, among others:
(1) that the various road transport modes compete on an equal footing
(2) that road users and other beneficiaries pay their fair share
(3) that they need not be subsidised from other sources. Unfortunately, road infrastructure, which is necessary for effective transport, often cannot be supplied at an acceptable profit. In addition, an effective and low-cost manner to collect income from road users is not readily available to private investors. These two factors obviously deter suppliers of capital and the consequent neglect of road infrastructure provision has an adverse effect on the economy. This situation gives rise to a suboptimal allocation of resources. It therefore becomes necessary for the government to assist the free market mechanism in its efforts to achieve an optimal allocation of resources. It does so by augmenting the provision of collective goods and services demanded by society, which are supplied only partially by the free market system, for example hospitals, health services and education. Government also provides such services as policing, defence and road infrastructure, albeit also for strategic or political rather than only economic reasons, such as to correct for market failure.
The road user, as the main beneficiary of expenditure on roads, should be charged sufficient, at least, to cover the costs for which he is responsible. It is therefore clear that road cost recovery should be based on theoretically sound, efficient and equitable road costing and allocation procedures (Pienaar, 2005). Road cost recovery objectives
Various objectives may be observed in both actual and potential road charging schemes. These objectives are summarised and grouped into seven categories below (Freeman, 1981):
(1) Resource allocation
This is the criterion favoured by economists. It means looking for schemes that will allocate resources efficiently in the economic sense.
(2) Covering the costs
Covering the costs means achieving a balanced road budget so that income equates with expenditure. It does not necessarily mean that resources are optimised, but is a common strategy for administrative or political reasons. One of the most persuasive reasons for requiring road users to cover their costs is that other forms of transport, e.g. the railways, are often required to cover theirs.
(3) Fiscal and monetary objectives
The crudest objective of a road user charging scheme may simply be to raise money to supplement general taxation. Such an objective is by no means uncommon in economically underdeveloped countries. However, as a fiscal policy instrument, charging schemes may be designed to pursue broad macroeconomic objectives. For example, it may be desirable to promote domestic industry or reduce the amount of imported fuels with consequent foreign exchange implications.
(4) Encouragement of proper investment decisions
There may be a close relationship between an efficient charging policy and an efficient road investment policy.
(5) Socio-economic objectives
Three possibilities exist under this heading. A charging scheme can (a) have significant effects on income distribution or (b) discriminate in favour of some mode of transport considered socially desirable (and vice versa) or (c) be used with a view to achieving desirable environmental consequences.
(6) Price stability
This objective (related to (3) above) is perhaps of lesser importance, but in some circumstances price stability over time has certain advantages. Planning is easier and inflation is dampened.
(7) Administrative efficiency and feasibility
A cost recovery schememust be capable of being implemented at reasonable cost and be immune to corruption in order to ensure that it would not waste more resources than the possible benefits from adopting it. Obviously there are many instances when governments pursue more than one objective; not all of the above objectives are conflicting and some may even be complementary to each other. It is unlikely that any two governments will in practice have needs that are exactly identical and thus each administration must find its own desired solution. Road cost allocation criteria
A proper programming of road supply requires rational procedures for recovering road costs from beneficiaries. The cost responsibility basis should be generally fair and equitable, and at the same time, be comprehensible to both the beneficiaries and administrators. Three criteria exist for distributing cost responsibility, namely (1) the benefit principle, (2) the ability-to-pay principle and (3) the socio-economic cost responsibility principle. These are briefly discussed below.
According to the benefit principle,road provision expenditure should be recovered from the actual beneficiaries in proportion to the value of the benefits each receives. This approach is fundamentally based on the criterion of achieving allocative efficiency. Some existing roaduser charges partly incorporate the benefit principle. Fuel levy is a case in point, because the vehicle users’ contributionsare more or less proportionate to their road usage. Increases in property tax in line with higher property values following road improvement also give effect to the benefit principle.
When user charges are levied not on travel itself, but on commodities associated with road travel, such as fuel, vehicles and tyres, it may be prudent to divide the tax burden among several commodities to avoid undue distortion of the demand for any one commodity. The necessity of spreading the burden will hinge on the relative price sensitivity of the demand for each commodity.
The ability-to-pay principle differs from the benefit principle inasmuch as it is not directly related to the benefits received. This approach serves equity considerations and is fundamentally based on the criterion of achieving distributive efficiency. It charges the community as a whole with the responsibility of providing the necessary infrastructure, and the cost involved is recovered according to the individuals’ ability to pay.
In many instances, the absence of a direct road use charge would lead to an uneconomic use of roads. The problems of traffic congestion and damage to the roads cannot be resolved via the price mechanism since the offenders (i.e. those who cause external costs) would in effect be subsidised by non-offenders. The principle would also be undesirable where roads compete with other modes of transport financed according to different principles. Therefore the ability-to-pay principle is normally rejected as unsuitable for allocating road cost responsibility.
The socio-economic cost responsibility principle has evolved from the gradual realisation of the complexity of distributing the cost responsibility for the provision of some facilities and services. The principle assumes, in the interest of achieving allocative efficiency, that users should bear the full cost of their usage while recognising that other worthwhile distributive or equity goals also need to be financed from charges levied. For example, an objective could be to subsidise public transport and discourage private vehicle use or to discriminate against vehicles which are less energy-efficient than is thought acceptable. In adopting this approach there is a clear recognition of the fact that fiscal policy is a powerful instrument of economic control that can be used to achieve the government’s policies.
Road costing theories
Two methods exist for costing a road system: (1) the historical cost method and (2) the development cost method.
Historical cost method
According to this method the sunk costs of constructing, expanding or renewing existing roads are spread over time between successive generations of users. The method involves two steps:
• Firstly, an estimate is made of the value of the capital tied up in the physical construction
• Secondly, a representative discount rate is selected whereby the value of this capital amount can be spread uniformly over the service life of the road network.
Development cost method
This method ignores the sunk costs of existing roads and concentrates on recovering current or future costs associated with expanding and maintaining the road system by one of two methods, namely the long-run marginal cost method, and the incremental method. These methods are explained below.
(1) Long-run marginal cost method
The cost of providing an additional road or expanded road space is based on the value of future services, which the road or expanded capacity will make possible. This method in principle, takes into account the variations in demand expected in the future. The price is determined by the intersection of the demand curve and the long-run marginal cost curve. This will not necessarily result in a total amount of charges that will cover the total road budget of the public authority. For example, traffic would normally be increasing over time, so that a newly constructed indivisible road would have low traffic demand in the initial years and so earn low revenue. In later years, as traffic increases, the revenue will also increase. Where there is much new construction, a deficit may be incurred for extended periods on the road account.
In the case of roads, there are peculiar difficulties involved in determining what the long-run marginal costs are because, unlike the electricity supply industry, where demand in one place can be met by supply in another, the supply of roads cannot be shifted spatially. Moreover, roads have a very long life, so that in practice they are rarely scrapped. The tendency is to add to the stock of roads or modify or rehabilitate them. For these reasons the concept of long-run marginal costs cannot be applied to its fullest extent to roads.
(2) Incremental method
The incremental method incorporates cost incurred per period, which boils down to pay-as-you-go. Investment costs are regarded as current costs in the year of expenditure. This method, in effect, regards road expenditure per period as the road cost that should be recovered during that period.
The incremental cost concept is the most unambiguous of all the conceivable measures of total cost. It ignores interest and amortisation and concentrates on the current drain on the government budget. For these reasons, incremental cost has the best claim to be the most suitable concept for defining the balanced budget requirement. It is directly and immediately related to the values that appear in the government’s accounts (Walters, 1968).
Road cost allocation methods
Eight methods are discussed of efficiently and/or equitably distributing road cost responsibility: the first four are based on the number of use of the road system, the fifth is based on benefit received, the sixth is linked to users’ willingness to pay, and the last two (7 and 8) are based on users’ cost responsibility.
(1) Standard cost method
This method is based on the estimated cost of constructing and maintaining a standard kilometre of a major arterial road. The amount thus calculated is then multiplied by the length of the country’s total road network to determine an overall monetary amount that can then be apportioned among users according to distance or tonnne-kilometres travelled. However, a standard kilometre can give no more thana crude approximation of the actual costs of constructing specific road sections under varying conditions. This procedure has virtually no practical value.
(2) Gross tonne-kilometre method
This method assumes that road infrastructure costs are related to gross vehicle mass and distance travelled, and that the benefits are proportional to the number of tonne-kilometres travelled. Cost responsibility is apportioned on the basis of the total distance travelled by each mass class. The technique fails, however, to consider the axle mass distribution or their effect on pavement design and wear. The method does not meaningfully reflect the cost of providing infrastructure, as several important variables are excluded for the sake of simplicity.
(3) Operating cost method
This method assumes a direct relationship between the value of the use of a road and the vehicle operating costs of the various classes of users. A road cost responsibility per vehicle is thus assigned proportional to the vehicle’s operating costs for each kilometre travelled. Operating costs are generally a poor measure of the respective cost responsibility of different vehicle classes in that they do not fully account for the provision that is made in road design for heavier vehicles.
(4) Space-time method
This method assumes that the use of a vehicle and the road system required for such use can be measured in terms of the road space a given vehicle requires during its operation and the total travel time that the vehicle occupies that space. This technique is rejected because it does not directly relate road space occupied by and total travel time of a vehicle to benefits, nor does it consider the influence of vehicle mass on the costs of road provision and maintenance.
(5) Differential benefit method
This is the most direct attempt to incorporate the benefit principle. It is assumed, basically, that user levies for vehicles of different sizes, masses and distances travelled should be proportional to the benefits derived from their use of the road. The main advantage of the technique is that expenditure on roads is justified only in terms of anticipated benefits. This implies that the actual cost of expanding the road system will be recovered from road users and that cost recovery will be based on long run marginal costs.
(6) Inverse elasticity method
This method apportions costs among users in proportion to their willingness to pay, as reflected by the perceived responses of different user groups to increases in roaduser charges. Users are charged in accordance with their perceived elasticity of demand, in-as-much as those who are willing to pay high prices are charged high prices. Willingness to pay is in effect a quasi benefit-based or value-of-service approach that can be used to maximise revenue for a road authority. There are fundamental objections to the discriminatory nature of this technique.
(7) Incremental cost method
This method assumes that various elements of road construction and maintenance are affected by the size and mass of vehicles using the road, and that the costs of these elements can be broken down into increments that reflect this use. In the usual application of this technique, the incremental cost attributed to a vehicle is determined on the basis of the number of axles and axle mass rather than gross vehicle mass. Thus the cost of each increment is apportioned among the various axle masses in accordance with vehicle kilometres travelled. The method reflects the effects of vehicle type and size of axle configuration on cost occasioned. Examples are amortisation costs of any facilities built especially for a particular vehicle category, such as exclusive busways, cycletracks, passing lanes and climbing lanes. Common costs, however, are inevitably allocated in a more arbitrary manner.
The incremental cost technique is usually advocated as an allocation method, which will ensure that heavy vehicles pay their share of costs, and in this respect, the rationale involved is sound from the practical implementation point of view. The method’s main drawback is the extensive data requirements, necessitating a large array of construction and maintenance costs, broken down by type of operation and type of road, as well as detailed travel data by vehicle class and road type.
(8) Cost-function method
This method is a modified version of the incremental cost approach. It divides road costs into three classes:
(a) costs affected by, or related to, vehicle (or axle) characteristics such as number of axles, mass and size
(b) coststhat vary with the amount of road use, but not with vehicle characteristics
(c) costs that are independent of both vehicle characteristics and road usage.
Costs that are associated with traffic volumes are assigned on the basis of vehiclekilometres of travel. Costs that are independent of vehicle size and mass and of traffic volume are assigned on a per vehicle basis. Costs related to vehicle size and mass are distributed on the basis of gross tonne-kilometres of travel.
The cost-function method, although probably more acceptable than the gross tonne-kilometre method, has a basic theoretical weakness. This weakness is that light vehicles will be paying a share of the total costs of the heaviest pavement and highest type of bridge design. The heavy vehicles that occasion such costs are able to shift part of the road cost burden to light vehicles. It is argued that the use of tonne-kilometres to distribute the mass-related costs tends to compensate for the fact that the entire cost that they occasion is not assigned to them by the cost-function method. (It is doubtful that the use of tonne-kilometres actually makes such compensation.)
In the cost-function method, it is usually found that heavy vehicles are assigned somewhat lesser costs than under the gross tonne-kilometre solution and that the incremental solution assigns higher cost to passenger cars and other light vehicles. In other words, the cost-function assignments are somewhere between the other two solutions (Freeman, 1981: Winfrey, 1969).
REFERENCES
Freeman, P.N.W. 1981. The recovery of costs from road users in South Africa.DComm dissertation. Pretoria: University of South Africa.
Pienaar, W.J. 2005.Road cost allocation and recovery. Working paper WP 1/03. Stellenbosch: Department of Logistics, Stellenbosch University.
Walters, A.A. 1968. The economics of road user charges. World Bank Staff, Occasional Paper 5. Baltimore: Johns Hopkins Press.
Winfrey, R. 1969.Economic analysis for highways. Scranton: International Textbook Company. About the author:
Wessel Pienaar is professor of Logistics at Stellenbosch University. He holds the following advanced qualifications: MEcon in Transport Economics (Stellenbosch University); MS in Civil Engineering (University of California, Berkeley); DComm in Transport Economics (University of South Africa); and PhD(Eng) in Civil Engineering (Stellenbosch University). He is chief editor and main author of the internationally used textbook Business Logistics Management: A Value Chain Perspective
Since public roads are, as a rule, provided by central, provincial/regional and local authorities, governments normally recover the cost of road infrastructure from the general public and road users through (1) income tax, (2) indirect taxes, and (3) road user charges incorporated in the price of road transport inputs.
Income tax (also known as direct taxation) is levied on the taxable income of individuals and firms, without having any traceable relationship with taxpayers’ benefit or use of public goods, such as road infrastructure.
Indirect taxes are paid by the general public through goods and services they purchase, and are not directly related to tax payers’ income characteristics. Indirect taxes are levied in the form of (1) value added tax, (2) customs, excise and import duties, (3) commodity tax (such as on petroleum products and so-called luxury products), and (4) transaction tax (such as on transactions per credit card, certain written contractual agreements and land/fixed property transactions). Both direct and indirect taxation accrue as general public income from which the government may allocate a proportion to the provision and maintenance of roads at its discretion.
User charges are levies paid by users of a product provided by a government or by a public enterprise. They are applied so that those who make use of and obtain the benefits of goods and services repay (or partially repay) the cost thereof to the government, for example, (1) road user charges, which generally take the form of tolls, vehicle licence fees, and fuel levies, and (2) travel fares charged for the use of public transport. (Note that not all vehicle licence fees and fuel levies represent user charges, they may also represent indirect taxes used as general government revenue.)
Controversy arises over:
(1) the amount of user charges
(2) the basis of measuring user benefit (e.g., distance travelled, number of passengers, load mass, etc.)(3) differential treatment of different types of vehicles (e.g. different charges for light and heavy vehicles on toll roads)
(4) an exact distinction or division between indirect taxes and road user charges
(5) the proportional road cost responsibility of road users and non-road users.
In order to promote the efficient allocation of scarce resources, users or consumers of these resources should, if possible, bear the full and actual cost of their use or consumption. This would ensure, among others:
(1) that the various road transport modes compete on an equal footing
(2) that road users and other beneficiaries pay their fair share
(3) that they need not be subsidised from other sources.
Unfortunately, road infrastructure, which is necessary for effective transport, often cannot be supplied at an acceptable profit. In addition, an effective and low-cost manner to collect income from road users is not readily available to private investors. These two factors obviously deter suppliers of capital and the consequent neglect of road infrastructure provision has an adverse effect on the economy. This situation gives rise to a suboptimal allocation of resources. It therefore becomes necessary for the government to assist the free market mechanism in its efforts to achieve an optimal allocation of resources. It does so by augmenting the provision of collective goods and services demanded by society, which are supplied only partially by the free market system, for example hospitals, health services and education. Government also provides such services as policing, defence and road infrastructure, albeit also for strategic or political rather than only economic reasons, such as to correct for market failure.
The road user, as the main beneficiary of expenditure on roads, should be charged sufficient, at least, to cover the costs for which he is responsible. It is therefore clear that road cost recovery should be based on theoretically sound, efficient and equitable road costing and allocation procedures (Pienaar, 2005).
Road cost recovery objectives
Various objectives may be observed in both actual and potential road charging schemes. These objectives are summarised and grouped into seven categories below (Freeman, 1981):
(1) Resource allocation
This is the criterion favoured by economists. It means looking for schemes that will allocate resources efficiently in the economic sense.
(2) Covering the costs
Covering the costs means achieving a balanced road budget so that income equates with expenditure. It does not necessarily mean that resources are optimised, but is a common strategy for administrative or political reasons. One of the most persuasive reasons for requiring road users to cover their costs is that other forms of transport, e.g. the railways, are often required to cover theirs.
(3) Fiscal and monetary objectives
The crudest objective of a road user charging scheme may simply be to raise money to supplement general taxation. Such an objective is by no means uncommon in economically underdeveloped countries. However, as a fiscal policy instrument, charging schemes may be designed to pursue broad macroeconomic objectives. For example, it may be desirable to promote domestic industry or reduce the amount of imported fuels with consequent foreign exchange implications.
(4) Encouragement of proper investment decisions
There may be a close relationship between an efficient charging policy and an efficient road investment policy.
(5) Socio-economic objectives
Three possibilities exist under this heading. A charging scheme can (a) have significant effects on income distribution or (b) discriminate in favour of some mode of transport considered socially desirable (and vice versa) or (c) be used with a view to achieving desirable environmental consequences.
(6) Price stability
This objective (related to (3) above) is perhaps of lesser importance, but in some circumstances price stability over time has certain advantages. Planning is easier and inflation is dampened.
(7) Administrative efficiency and feasibility
A cost recovery schememust be capable of being implemented at reasonable cost and be immune to corruption in order to ensure that it would not waste more resources than the possible benefits from adopting it.
Obviously there are many instances when governments pursue more than one objective; not all of the above objectives are conflicting and some may even be complementary to each other. It is unlikely that any two governments will in practice have needs that are exactly identical and thus each administration must find its own desired solution.
Road cost allocation criteria
A proper programming of road supply requires rational procedures for recovering road costs from beneficiaries. The cost responsibility basis should be generally fair and equitable, and at the same time, be comprehensible to both the beneficiaries and administrators. Three criteria exist for distributing cost responsibility, namely (1) the benefit principle, (2) the ability-to-pay principle and (3) the socio-economic cost responsibility principle. These are briefly discussed below.
According to the benefit principle,road provision expenditure should be recovered from the actual beneficiaries in proportion to the value of the benefits each receives. This approach is fundamentally based on the criterion of achieving allocative efficiency. Some existing roaduser charges partly incorporate the benefit principle. Fuel levy is a case in point, because the vehicle users’ contributionsare more or less proportionate to their road usage. Increases in property tax in line with higher property values following road improvement also give effect to the benefit principle.
When user charges are levied not on travel itself, but on commodities associated with road travel, such as fuel, vehicles and tyres, it may be prudent to divide the tax burden among several commodities to avoid undue distortion of the demand for any one commodity. The necessity of spreading the burden will hinge on the relative price sensitivity of the demand for each commodity.
The ability-to-pay principle differs from the benefit principle inasmuch as it is not directly related to the benefits received. This approach serves equity considerations and is fundamentally based on the criterion of achieving distributive efficiency. It charges the community as a whole with the responsibility of providing the necessary infrastructure, and the cost involved is recovered according to the individuals’ ability to pay.
In many instances, the absence of a direct road use charge would lead to an uneconomic use of roads. The problems of traffic congestion and damage to the roads cannot be resolved via the price mechanism since the offenders (i.e. those who cause external costs) would in effect be subsidised by non-offenders. The principle would also be undesirable where roads compete with other modes of transport financed according to different principles. Therefore the ability-to-pay principle is normally rejected as unsuitable for allocating road cost responsibility.
The socio-economic cost responsibility principle has evolved from the gradual realisation of the complexity of distributing the cost responsibility for the provision of some facilities and services. The principle assumes, in the interest of achieving allocative efficiency, that users should bear the full cost of their usage while recognising that other worthwhile distributive or equity goals also need to be financed from charges levied. For example, an objective could be to subsidise public transport and discourage private vehicle use or to discriminate against vehicles which are less energy-efficient than is thought acceptable. In adopting this approach there is a clear recognition of the fact that fiscal policy is a powerful instrument of economic control that can be used to achieve the government’s policies.
Road costing theories
Two methods exist for costing a road system: (1) the historical cost method and (2) the development cost method.
Historical cost method
According to this method the sunk costs of constructing, expanding or renewing existing roads are spread over time between successive generations of users. The method involves two steps:
· Firstly, an estimate is made of the value of the capital tied up in the physical construction
· Secondly, a representative discount rate is selected whereby the value of this capital amount can be spread uniformly over the service life of the road network.
Development cost method
This method ignores the sunk costs of existing roads and concentrates on recovering current or future costs associated with expanding and maintaining the road system by one of two methods, namely the long-run marginal cost method, and the incremental method. These methods are explained below.
(1) Long-run marginal cost method
The cost of providing an additional road or expanded road space is based on the value of future services, which the road or expanded capacity will make possible. This method in principle, takes into account the variations in demand expected in the future. The price is determined by the intersection of the demand curve and the long-run marginal cost curve. This will not necessarily result in a total amount of charges that will cover the total road budget of the public authority. For example, traffic would normally be increasing over time, so that a newly constructed indivisible road would have low traffic demand in the initial years and so earn low revenue. In later years, as traffic increases, the revenue will also increase. Where there is much new construction, a deficit may be incurred for extended periods on the road account.
In the case of roads, there are peculiar difficulties involved in determining what the long-run marginal costs are because, unlike the electricity supply industry, where demand in one place can be met by supply in another, the supply of roads cannot be shifted spatially. Moreover, roads have a very long life, so that in practice they are rarely scrapped. The tendency is to add to the stock of roads or modify or rehabilitate them. For these reasons the concept of long-run marginal costs cannot be applied to its fullest extent to roads.
(2) Incremental method
The incremental method incorporates cost incurred per period, which boils down to pay-as-you-go. Investment costs are regarded as current costs in the year of expenditure. This method, in effect, regards road expenditure per period as the road cost that should be recovered during that period.
The incremental cost concept is the most unambiguous of all the conceivable measures of total cost. It ignores interest and amortisation and concentrates on the current drain on the government budget. For these reasons, incremental cost has the best claim to be the most suitable concept for defining the balanced budget requirement. It is directly and immediately related to the values that appear in the government’s accounts (Walters, 1968).
Road cost allocation methods
Eight methods are discussed of efficiently and/or equitably distributing road cost responsibility: the first four are based on the number of use of the road system, the fifth is based on benefit received, the sixth is linked to users’ willingness to pay, and the last two (7 and 8) are based on users’ cost responsibility.
(1) Standard cost method
This method is based on the estimated cost of constructing and maintaining a standard kilometre of a major arterial road. The amount thus calculated is then multiplied by the length of the country’s total road network to determine an overall monetary amount that can then be apportioned among users according to distance or tonnne-kilometres travelled. However, a standard kilometre can give no more thana crude approximation of the actual costs of constructing specific road sections under varying conditions. This procedure has virtually no practical value.
(2) Gross tonne-kilometre method
This method assumes that road infrastructure costs are related to gross vehicle mass and distance travelled, and that the benefits are proportional to the number of tonne-kilometres travelled. Cost responsibility is apportioned on the basis of the total distance travelled by each mass class. The technique fails, however, to consider the axle mass distribution or their effect on pavement design and wear. The method does not meaningfully reflect the cost of providing infrastructure, as several important variables are excluded for the sake of simplicity.
(3) Operating cost method
This method assumes a direct relationship between the value of the use of a road and the vehicle operating costs of the various classes of users. A road cost responsibility per vehicle is thus assigned proportional to the vehicle’s operating costs for each kilometre travelled. Operating costs are generally a poor measure of the respective cost responsibility of different vehicle classes in that they do not fully account for the provision that is made in road design for heavier vehicles.
(4) Space-time method
This method assumes that the use of a vehicle and the road system required for such use can be measured in terms of the road space a given vehicle requires during its operation and the total travel time that the vehicle occupies that space. This technique is rejected because it does not directly relate road space occupied by and total travel time of a vehicle to benefits, nor does it consider the influence of vehicle mass on the costs of road provision and maintenance.
(5) Differential benefit method
This is the most direct attempt to incorporate the benefit principle. It is assumed, basically, that user levies for vehicles of different sizes, masses and distances travelled should be proportional to the benefits derived from their use of the road. The main advantage of the technique is that expenditure on roads is justified only in terms of anticipated benefits. This implies that the actual cost of expanding the road system will be recovered from road users and that cost recovery will be based on long‑run marginal costs.
(6) Inverse elasticity method
This method apportions costs among users in proportion to their willingness to pay, as reflected by the perceived responses of different user groups to increases in roaduser charges. Users are charged in accordance with their perceived elasticity of demand, in-as-much as those who are willing to pay high prices are charged high prices. Willingness to pay is in effect a quasi benefit-based or value-of-service approach that can be used to maximise revenue for a road authority. There are fundamental objections to the discriminatory nature of this technique.
(7) Incremental cost method
This method assumes that various elements of road construction and maintenance are affected by the size and mass of vehicles using the road, and that the costs of these elements can be broken down into increments that reflect this use. In the usual application of this technique, the incremental cost attributed to a vehicle is determined on the basis of the number of axles and axle mass rather than gross vehicle mass. Thus the cost of each increment is apportioned among the various axle masses in accordance with vehicle kilometres travelled. The method reflects the effects of vehicle type and size of axle configuration on cost occasioned. Examples are amortisation costs of any facilities built especially for a particular vehicle category, such as exclusive busways, cycletracks, passing lanes and climbing lanes. Common costs, however, are inevitably allocated in a more arbitrary manner.
The incremental cost technique is usually advocated as an allocation method, which will ensure that heavy vehicles pay their share of costs, and in this respect, the rationale involved is sound from the practical implementation point of view. The method’s main drawback is the extensive data requirements, necessitating a large array of construction and maintenance costs, broken down by type of operation and type of road, as well as detailed travel data by vehicle class and road type.
(8) Cost-function method
This method is a modified version of the incremental cost approach. It divides road costs into three classes:
(a) costs affected by, or related to, vehicle (or axle) characteristics such as number of axles, mass and size
(b) coststhat vary with the amount of road use, but not with vehicle characteristics
(c) costs that are independent of both vehicle characteristics and road usage.
Costs that are associated with traffic volumes are assigned on the basis of vehiclekilometres of travel. Costs that are independent of vehicle size and mass and of traffic volume are assigned on a per vehicle basis. Costs related to vehicle size and mass are distributed on the basis of gross tonne-kilometres of travel.
The cost-function method, although probably more acceptable than the gross tonne-kilometre method, has a basic theoretical weakness. This weakness is that light vehicles will be paying a share of the total costs of the heaviest pavement and highest type of bridge design. The heavy vehicles that occasion such costs are able to shift part of the road cost burden to light vehicles. It is argued that the use of tonne-kilometres to distribute the mass-related costs tends to compensate for the fact that the entire cost that they occasion is not assigned to them by the cost-function method. (It is doubtful that the use of tonne-kilometres actually makes such compensation.)
In the cost-function method, it is usually found that heavy vehicles are assigned somewhat lesser costs than under the gross tonne-kilometre solution and that the incremental solution assigns higher cost to passenger cars and other light vehicles. In other words, the cost-function assignments are somewhere between the other two solutions (Freeman, 1981: Winfrey, 1969).
REFERENCES
Freeman, P.N.W. 1981. The recovery of costs from road users in South Africa.DComm dissertation. Pretoria: University of South Africa.
Pienaar, W.J. 2005.Road cost allocation and recovery. Working paper WP 1/03. Stellenbosch: Department of Logistics, Stellenbosch University.
Walters, A.A. 1968. The economics of road user charges. World Bank Staff, Occasional Paper 5. Baltimore: Johns Hopkins Press.
Winfrey, R. 1969.Economic analysis for highways. Scranton: International Textbook Company.
About the author:
|
a:\CV Eng WJ Pienaarverkort 5 May 2009.doc FD [1] 08 |
