External effects and social costs of road transport

The article contains a welfare economic analysis of road transport’s external effects. First, the paper discusses the definition of external effects. Applying this definition, it is concluded that road transport activities give rise to a wide range of external costs. However, there are no external benefits associated with individual road transport activities which might compensate for such effects. Therefore, road transport volumes will in general be beyond the optimal levels. Second, the paper describes a conceptual framework for the analysis of environmental external costs. It is explicitly recognized that not only the externality as such, but also the induced outlays on defensive and abatement activities should play an important role in welfare economic analyses of external effects. Then, this framework is used for the evaluation of the existing empirical work on road transport’s environmental external costs (i.e., noise and air pollution). It is concluded that most of the studies carried out in the field will provide an underestimation of road transport’s external costs by definition. Finally, some attention is paid to empirical estimates of road transport’s accident costs.