Pricing Externalities from Passenger Transportation in Mexico City

55 Pages Posted: 20 Apr 2016

See all articles by Ian W. H. Parry

Ian W. H. Parry

Resources for the Future

Govinda R. Timilsina

World Bank - Development Research Group (DECRG)

Date Written: October 1, 2009

Abstract

The Mexico City Metropolitan Area has been suffering severely from transportation externalities such as accidents, air pollution, and traffic congestion. This study examines pricing instruments to reduce these externalities using an analytical and numerical model. The study shows that the optimal levels of a gasoline tax and a congestion toll on automobiles could generate social benefits, measured in terms of welfare gain, of US$132 and US$109 per capita, respectively, through the reduction of externalities. The largest component of the welfare gains comes from reduced congestion, followed by local air pollution reduction. The optimal toll and tax would, however, double the cost of driving and could be politically sensitive. Still, more than half of those welfare gains could be obtained through a more modest tax or toll, equivalent to $1 per gallon of gasoline. The welfare gains from reforming the pricing of public transportation are small relative to those from reforming the taxation of automobiles. Although the choice among travel modes depends on specific circumstances, in the absence of road travel pricing that accounts for externalities, there will be potential for higher investment in roads relative to mass transit. Given the rapidly increasing demand for transportation infrastructure in Mexico City, careful efforts should be made to include the full social costs of travel in evaluating alternative infrastructure investments.

Keywords: Transport Economics Policy & Planning, Roads & Highways, Energy Production and Transportation, Transport and Environment, Transport in Urban Areas

Suggested Citation

Parry, Ian W. H. and Timilsina, Govinda R., Pricing Externalities from Passenger Transportation in Mexico City (October 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1492552

Ian W. H. Parry (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5151 (Phone)
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HOME PAGE: http://www.rff.org/~parry

Govinda R. Timilsina

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

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