Market failure in transport economics
yeah, blah blah blah, I was going on and on about the market failure topic last year and you probably know all about it. but yeah, I need to remind myself.
So, market failure itself is inefficiency of the price mechanism in markets, or, in other words, when allocative and\or productive efficiencies are not achieved.
Allocative effciency is when the consumer's needs are satisfied and price equals marginal cost.
Productive efficiency is when the resources are used effectively, eg the least possible amount of scarce resources are used to produce the maximum output.
There are several types of market failure:
- existance of positive and\or negative externalities, which are quite difficult to calculate in order to include their value in the price.
- information failure
- government failure
- possibly smth else, but i dun remember actually, lol, I have to revise
So, in case of transport, what kind of market failure might arise.
Lots of negative externalities, negative effects on the third party, obviously, such as:
- atmospheric pollution
- noise pollution
- congestion (traffic jams)
- visual intrusion
The government is trying to deal with those by different methods, but there still is one main problem - how to estimate those external costs, which arise from pollution, congestion, accidents, etc.
Even though the costs ARE estimated, another problem is how to include them in the price. The government tends to do it through different types of indirect taxation, as well as applying other methods like road pricing, various regulations, subsidies to support public transport, information provision.
Or introdcuing shadow price - a relative price that is proportional to the opportunity cost for the economy, as so much time is lost in traffic jams, for instance.
The revenue from tax could be allocated to different purposes, such as improvement of infrastructure, extendind roads etc.
For further info, for God's sake, read the freaking texbook!
ps, yeah, I would have commented on that efficent road pricing diagram, but I have already done it in my mock, which I did on Friday. so lol, sorry, no boring diagrams for today.