This paper discusses the effects of alternative waysof using external cost estimates to regulatei... more This paper discusses the effects of alternative waysof using external cost estimates to regulateinvestments and generation in the electricityproduction sector. Starting from the existing system,four alternatives are considered: emission taxes forthe utility and for independent producers, emissiontaxes limited to the electric utility, emissionpermits limited to the electric utility and finally asystem where only investments are regulated, anddispatch is not. Taking external damage estimates fromthe literature, these alternatives are compared usinga dynamic partial equilibrium model of the Belgianelectricity market for the period 1995–2034. Theefficiency and distribution effects of the alternativeenvironmental policy instruments are quantified.
This paper assesses the economic justification for the selection of priority projects defined und... more This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a costbenefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.
A market for pollution permits is created when a limited amount of “property rights” on emissions... more A market for pollution permits is created when a limited amount of “property rights” on emissions are distributed to economic agents. These represent a “right to pollute”, proportional to the amount of property rights owned by the agent. These rights can be traded between economic agents (and between EU countries).
This paper explores reforms of pricing of private and public transport in Paris. Paris has used a... more This paper explores reforms of pricing of private and public transport in Paris. Paris has used a policy of very low public transport prices and no road pricing. The Paris transport network is represented as a stylized concentric city with the choice between car, rapid rail, metro and busses as well as two income classes and different transport motives. The model is used to test what are the efficiency gains of introducing road pricing and of increasing public transit prices in the peak. Are both reforms reenforcing each other or are they largely substitutes? We find that a zonal pricing scheme for the center of Paris combined with higher public transport fares in the peak perform best. The benefits of an overall capacity extension of public transport supply are much lower than the benefits of pricing reforms and could very well not pass the cost benefit test.
We examine how diversi…cation of projects assigned to an agency can enhance e¢ ciency by informin... more We examine how diversi…cation of projects assigned to an agency can enhance e¢ ciency by informing a principal of the agency's quality. Projects that appear ine¢ cient in isolation may be justi…ed when assigned to the same agency. Assigning di¤erent tasks to di¤erent special purpose governments, though allowing for technical e¢ ciency in the management of each project, may nevertheless reduce overall e¢ ciency.
This paper develops a model for the monopolistic competition of subcenters for the shoppers and w... more This paper develops a model for the monopolistic competition of subcenters for the shoppers and workers of a central city. The model is an extension of the de Palma & Proost (2004) model that is limited to the symmetric case. Inhabitants of a CBD can choose one of the subcenters to buy a differentiated product and choose one of the subcenters to supply differentiated labour. The subcenters compete in prices and wages and the access to the subcenters can be congested. The short term and free entry equilibria are studied. As general properties are rare in the non-symmetrical monopolistic competition case, this paper draws more on numerical examples than on hard theorems. Starting from a symmetric base case, the paper explores the effects on welfare and number of subcenters of introducing diversity in the distances to the subcenter, quality of the subcenters, congestion and attractiveness of the subcenter as workplace. The paper shows cases where asymmetry can increase welfare and where the order in which firms enter the market matters for the equilibrium outcome.
Environmental & Resource Economics - ENVIRON RESOUR ECON, 1998
During the last decade much progress has been made in defining & measuring the external costs of ... more During the last decade much progress has been made in defining & measuring the external costs of transport. As the cost of tolling equipment falls, the set of realistic policy options to internalise these externalities will continue to grow. This will determine the research and policy agenda. We make three points. Firstly, empirical work is still necessary to better identify marginal external costs, including congestion, accident and environmental costs. Secondly, any assessment of policy options should treat externalities simultaneously. The use of pricing instruments and emissions standards are discussed within this framework. Thirdly, we emphasise the role of government. Designing the optimal road-pricing institutions requires consideration of horizontal and vertical tax competition, while double-dividend arguments are central to the question of securing public support.
We study the problem of a city with access to two firms or subcentres (restaurants, airports) sel... more We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.
There has been a very large amount of research devoted to the study of chains of activities. The ... more There has been a very large amount of research devoted to the study of chains of activities. The initial studies were developed in geography (space and time description of human activity, as described by Torsten Hägerstrand and Peter Hagget) and in economics (starting with the seminal work of Gary Becker). More recently, transportation scholars (see for example the studies of Chandra Bhat or of Kay Axhausen) have started to develop sophisticated econometric models to describe the chain of activities during the whole day, or the whole week. One rationale for this research is the fact that users are increasingly sophisticated and spend more and more time on trips other than from home to work. Thus, lengthy trips with many stops can now be envisaged (with sometimes one of these stops being at the office) which change the structure of travel demand.
Cost–benefit analysis plays a central role in planning and investment decisions related to transp... more Cost–benefit analysis plays a central role in planning and investment decisions related to transportation. Yet, this process is often rather obscure and difficult to control and check by an outsider. We propose here a new engineering-economic-based tool, MOLINO, to perform cost benefit analysis of transport projects and regulations in a network and multi-period context. MOLINO performs cost–benefit analysis for different transport modes and types of freight and/or passenger traffic, peak and off-peak time periods, diverse market structures (private or public monopoly or duopoly, regulated or unregulated) and various financing schemes. Congestion levels are computed endogenously. MOLINO computes costs and benefits over multiple periods and the length of the time horizon is flexible. Outputs include equilibrium values of user and social benefits, financial flows and measures of effectiveness such as congestion delays.
Transport activity is inextricably linked with environmental damage. Economists traditionally urg... more Transport activity is inextricably linked with environmental damage. Economists traditionally urge policy makers to adopt pricing solutions, in particular taxes, to reduce environmental damage rather than quantity restrictions or standards. This chapter examines environmental pricing, defined broadly to include emission taxes, product taxes and subsidies and compares it to alternative approaches. We begin with a simple formal model to demonstrate the relative efficiency properties of pricing solutions, before highlighting some of the associated implementation problems. We then extend the scope and realism of the analysis by examining the choice between regulatory instruments in the presence of several market distortions. The basic case for environmental taxes, set at the correct level, is shown to remain. It is impossible to cover all modes and all real world case studies of pricing in this text. Rather, we illustrate our central point in the context of air pollution from car use. However, as we stress in the concluding section, the essential insight from the model applies to a whole range of enviromental problems in the transport sector. Readers interested in surveys of practical experiences are referred to The Policy Issues chapters of Handbook 6. A general introduction to the choice of regulatory instruments to tackle environmental damage can be found in Kolstad (1999).
This chapter introduces the research agenda. The problems related to the use of revenues from tol... more This chapter introduces the research agenda. The problems related to the use of revenues from tolling and charging in the transport sector are organised into nine research questions. These range from the optimal level of user charges to the optimal allocation of the revenues and the appropriate choice of institutions to accomplish this. The theoretical contributions and the case studies of the book are briefly outlined.
In this paper we discuss the effects of different climate change policies on industrial activity.... more In this paper we discuss the effects of different climate change policies on industrial activity. We compare the effects of carbon taxes, grandfathered permits, technology standards and voluntary agreements. We survey first the insights from economic theory and from model experiments for the US. Next we use a general equilibrium model, to assess the effect of different climate change policies on industrial activity per sector and per member country in the EU. We pay particular attention to the effects of policies where EU member states exempt their energy-intensive sectors from abatement efforts. The main findings are that, in the EU, the effects on industrial activity and the welfare costs of carbon abatement policies that use tradeable permits or carbon taxes are small when no industrial sectors are exempted. When one member country exempts its energy intensive sector, this will have a small positive impact on its activity level but will generate an extra welfare cost for the EU.
This paper discusses investments in transport infrastructure and incentives for commuting taxes i... more This paper discusses investments in transport infrastructure and incentives for commuting taxes in a multiregional setting. We study the horizontal and vertical interactions between governments. We identify incentives for strategic and tax exporting behavior that might lead to underinvestment in transport infrastructure. Furthermore, we show that the intensity of the strategic behavior is a¤ected by geographic …rm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. A numerical example applies the insights on commuting in Belgium.
This paper examines the effects of replacing current fuel taxes by a system of taxes that account... more This paper examines the effects of replacing current fuel taxes by a system of taxes that account better for all the different external costs of the different transport modes. One of the important implications of this reform is that current fuel taxes are decreased to a level of 80 euro/ton of CO2 but that the mileage related taxes on car and truck use increase. Using the TREMOVE model for the transport sector of 31 European countries, one finds that the volume of transport will decrease because current taxes on transport are too low compared to overall external costs. Overall CO2 emissions will decrease slightly. Using the MARKAL–TIMES model for the Belgian energy sector, putting all sectors and technologies on equal footing shows that a fuel tax reform makes that it is not cost efficient to require large CO2 emission reductions in the transport sector and that traditional car technologies will continue to dominate the car market in 2020–2030.
The purpose of this paper is to compare the interaction between pricing and capacity decisions on... more The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls.
This paper discusses the effects of alternative waysof using external cost estimates to regulatei... more This paper discusses the effects of alternative waysof using external cost estimates to regulateinvestments and generation in the electricityproduction sector. Starting from the existing system,four alternatives are considered: emission taxes forthe utility and for independent producers, emissiontaxes limited to the electric utility, emissionpermits limited to the electric utility and finally asystem where only investments are regulated, anddispatch is not. Taking external damage estimates fromthe literature, these alternatives are compared usinga dynamic partial equilibrium model of the Belgianelectricity market for the period 1995–2034. Theefficiency and distribution effects of the alternativeenvironmental policy instruments are quantified.
This paper assesses the economic justification for the selection of priority projects defined und... more This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a costbenefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.
A market for pollution permits is created when a limited amount of “property rights” on emissions... more A market for pollution permits is created when a limited amount of “property rights” on emissions are distributed to economic agents. These represent a “right to pollute”, proportional to the amount of property rights owned by the agent. These rights can be traded between economic agents (and between EU countries).
This paper explores reforms of pricing of private and public transport in Paris. Paris has used a... more This paper explores reforms of pricing of private and public transport in Paris. Paris has used a policy of very low public transport prices and no road pricing. The Paris transport network is represented as a stylized concentric city with the choice between car, rapid rail, metro and busses as well as two income classes and different transport motives. The model is used to test what are the efficiency gains of introducing road pricing and of increasing public transit prices in the peak. Are both reforms reenforcing each other or are they largely substitutes? We find that a zonal pricing scheme for the center of Paris combined with higher public transport fares in the peak perform best. The benefits of an overall capacity extension of public transport supply are much lower than the benefits of pricing reforms and could very well not pass the cost benefit test.
We examine how diversi…cation of projects assigned to an agency can enhance e¢ ciency by informin... more We examine how diversi…cation of projects assigned to an agency can enhance e¢ ciency by informing a principal of the agency's quality. Projects that appear ine¢ cient in isolation may be justi…ed when assigned to the same agency. Assigning di¤erent tasks to di¤erent special purpose governments, though allowing for technical e¢ ciency in the management of each project, may nevertheless reduce overall e¢ ciency.
This paper develops a model for the monopolistic competition of subcenters for the shoppers and w... more This paper develops a model for the monopolistic competition of subcenters for the shoppers and workers of a central city. The model is an extension of the de Palma & Proost (2004) model that is limited to the symmetric case. Inhabitants of a CBD can choose one of the subcenters to buy a differentiated product and choose one of the subcenters to supply differentiated labour. The subcenters compete in prices and wages and the access to the subcenters can be congested. The short term and free entry equilibria are studied. As general properties are rare in the non-symmetrical monopolistic competition case, this paper draws more on numerical examples than on hard theorems. Starting from a symmetric base case, the paper explores the effects on welfare and number of subcenters of introducing diversity in the distances to the subcenter, quality of the subcenters, congestion and attractiveness of the subcenter as workplace. The paper shows cases where asymmetry can increase welfare and where the order in which firms enter the market matters for the equilibrium outcome.
Environmental & Resource Economics - ENVIRON RESOUR ECON, 1998
During the last decade much progress has been made in defining & measuring the external costs of ... more During the last decade much progress has been made in defining & measuring the external costs of transport. As the cost of tolling equipment falls, the set of realistic policy options to internalise these externalities will continue to grow. This will determine the research and policy agenda. We make three points. Firstly, empirical work is still necessary to better identify marginal external costs, including congestion, accident and environmental costs. Secondly, any assessment of policy options should treat externalities simultaneously. The use of pricing instruments and emissions standards are discussed within this framework. Thirdly, we emphasise the role of government. Designing the optimal road-pricing institutions requires consideration of horizontal and vertical tax competition, while double-dividend arguments are central to the question of securing public support.
We study the problem of a city with access to two firms or subcentres (restaurants, airports) sel... more We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.
There has been a very large amount of research devoted to the study of chains of activities. The ... more There has been a very large amount of research devoted to the study of chains of activities. The initial studies were developed in geography (space and time description of human activity, as described by Torsten Hägerstrand and Peter Hagget) and in economics (starting with the seminal work of Gary Becker). More recently, transportation scholars (see for example the studies of Chandra Bhat or of Kay Axhausen) have started to develop sophisticated econometric models to describe the chain of activities during the whole day, or the whole week. One rationale for this research is the fact that users are increasingly sophisticated and spend more and more time on trips other than from home to work. Thus, lengthy trips with many stops can now be envisaged (with sometimes one of these stops being at the office) which change the structure of travel demand.
Cost–benefit analysis plays a central role in planning and investment decisions related to transp... more Cost–benefit analysis plays a central role in planning and investment decisions related to transportation. Yet, this process is often rather obscure and difficult to control and check by an outsider. We propose here a new engineering-economic-based tool, MOLINO, to perform cost benefit analysis of transport projects and regulations in a network and multi-period context. MOLINO performs cost–benefit analysis for different transport modes and types of freight and/or passenger traffic, peak and off-peak time periods, diverse market structures (private or public monopoly or duopoly, regulated or unregulated) and various financing schemes. Congestion levels are computed endogenously. MOLINO computes costs and benefits over multiple periods and the length of the time horizon is flexible. Outputs include equilibrium values of user and social benefits, financial flows and measures of effectiveness such as congestion delays.
Transport activity is inextricably linked with environmental damage. Economists traditionally urg... more Transport activity is inextricably linked with environmental damage. Economists traditionally urge policy makers to adopt pricing solutions, in particular taxes, to reduce environmental damage rather than quantity restrictions or standards. This chapter examines environmental pricing, defined broadly to include emission taxes, product taxes and subsidies and compares it to alternative approaches. We begin with a simple formal model to demonstrate the relative efficiency properties of pricing solutions, before highlighting some of the associated implementation problems. We then extend the scope and realism of the analysis by examining the choice between regulatory instruments in the presence of several market distortions. The basic case for environmental taxes, set at the correct level, is shown to remain. It is impossible to cover all modes and all real world case studies of pricing in this text. Rather, we illustrate our central point in the context of air pollution from car use. However, as we stress in the concluding section, the essential insight from the model applies to a whole range of enviromental problems in the transport sector. Readers interested in surveys of practical experiences are referred to The Policy Issues chapters of Handbook 6. A general introduction to the choice of regulatory instruments to tackle environmental damage can be found in Kolstad (1999).
This chapter introduces the research agenda. The problems related to the use of revenues from tol... more This chapter introduces the research agenda. The problems related to the use of revenues from tolling and charging in the transport sector are organised into nine research questions. These range from the optimal level of user charges to the optimal allocation of the revenues and the appropriate choice of institutions to accomplish this. The theoretical contributions and the case studies of the book are briefly outlined.
In this paper we discuss the effects of different climate change policies on industrial activity.... more In this paper we discuss the effects of different climate change policies on industrial activity. We compare the effects of carbon taxes, grandfathered permits, technology standards and voluntary agreements. We survey first the insights from economic theory and from model experiments for the US. Next we use a general equilibrium model, to assess the effect of different climate change policies on industrial activity per sector and per member country in the EU. We pay particular attention to the effects of policies where EU member states exempt their energy-intensive sectors from abatement efforts. The main findings are that, in the EU, the effects on industrial activity and the welfare costs of carbon abatement policies that use tradeable permits or carbon taxes are small when no industrial sectors are exempted. When one member country exempts its energy intensive sector, this will have a small positive impact on its activity level but will generate an extra welfare cost for the EU.
This paper discusses investments in transport infrastructure and incentives for commuting taxes i... more This paper discusses investments in transport infrastructure and incentives for commuting taxes in a multiregional setting. We study the horizontal and vertical interactions between governments. We identify incentives for strategic and tax exporting behavior that might lead to underinvestment in transport infrastructure. Furthermore, we show that the intensity of the strategic behavior is a¤ected by geographic …rm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. A numerical example applies the insights on commuting in Belgium.
This paper examines the effects of replacing current fuel taxes by a system of taxes that account... more This paper examines the effects of replacing current fuel taxes by a system of taxes that account better for all the different external costs of the different transport modes. One of the important implications of this reform is that current fuel taxes are decreased to a level of 80 euro/ton of CO2 but that the mileage related taxes on car and truck use increase. Using the TREMOVE model for the transport sector of 31 European countries, one finds that the volume of transport will decrease because current taxes on transport are too low compared to overall external costs. Overall CO2 emissions will decrease slightly. Using the MARKAL–TIMES model for the Belgian energy sector, putting all sectors and technologies on equal footing shows that a fuel tax reform makes that it is not cost efficient to require large CO2 emission reductions in the transport sector and that traditional car technologies will continue to dominate the car market in 2020–2030.
The purpose of this paper is to compare the interaction between pricing and capacity decisions on... more The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls.
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Papers by Stef Proost