User charges, cross-subsidization, and public subsidy-The case of expressways in Japan

In Japan, the construction of the intercity expressway network is presently underway. The scale and layout of the network were determined not only in accordance with the forecast of traffic volume, but also from the viewpoint of equal opportunity. To enable as many people as possible to enjoy the service of high-speed transport, a pool system of revenues and costs (plus a uniform toll rate system) has been adopted for all intercity expressway routes. The costs of each route are covered by tolls paid by its users, cross-subsidization from other routes, and public funds. Recently, a system has been officially proposed by which, in cases where the construction of an unprofitable route is planned to attain the policy objectives, the upper limit of cross-subsidization is quantitatively fixed from the standpoint of equity and the need and scale of public subsidies are determined according to this. Commercial and economic cross-subsidization based on external effects is not contrary to the allocative efficiency, while social cross-subsidization may be wasteful in terms of efficiency. Moreover, it is essential to distinguish the function and role of cross-subsidization during the stage of network formation from those for the subsequent stages of its maintenance and management.