Notesale: Turn your study into money

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Michaela Smart

Discuss the effectiveness of different methods used by economists to attach monetary
values to the external costs and benefits arising from the use of transport
A variety of approaches may be employed in attaching monetary values to the negative and positive
externalities that arise from the use of transport
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However
these Shadow Prices are only ever approximations and estimates of the value of the externality
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There an
many externalities that arise from transport use, this include noise pollution which is especially
prominent in the air travel industry which leads to the deprecation of house equity, air pollution
associated with heavy and congested roads which leads to an increase in the risk of repertory
problems such as Asthma which are especially problematic for elderly people and young children
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One of the most used methods to calculate the Shadow costs of transport use is Increased User Cost
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For
example this may be £5, this cost increases when with each additional road user, the marginal cost
increase
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For example, for the first 1000 extra vehicles on the road the individual user cost may
increase to £5
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The external cost is then multiplied
by the number of extra users, in this instance 1000: 1000 times 5 equals £50
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The government currently estimate
that congestion cost £25bn each year, this has a significant opportunity cost and will affect decision
on subsides and service provision in order to try to encourage modal switch to more sustainable
modes of transport
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Both the externa and
casualty costs are taken into account in RTC
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Additionally the suffering and distress of the family are also quantified, especially is the
accident is fatal, this may in terms of the cost of therapy or the time they have to take from work to
mourn
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These costs are totalled up to create the final estimate for the casualty costs
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The external cost of the accident is quantified by assessing the cost of
damaged property, such as the cost of the damaged cars, road barriers or road side sign posts
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The cost to the
insurance company is also taken into consideration
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Furthermore, by adding totalling up the cost of required compensation and/or the cost of removing the
negative externalities the total value of compensation is achieved, this is another important method
used to find the Shadow Price of transport
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House that are
located in close proximity to major airports such as Heathrow suffer considerably with noise pollution
from the aircraft taking off and landing all day
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Additionally the equity of these houses is likely to decrease, because the
demand for houses living near airports is reduced, this means the current market house of the price is
lower than when the house was purchased, the difference in equity is easily quantifiable and is a
significant cost that needs to be compensated for and is also used to detriment the cost to local
residents as they may not be fully compensated
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However, these methods will only ever be approximate and estimations of the monetary value of the
externalists and there is a myriad of potential reason why the Shadow Price maybe be incorrect, a
change in anyone one of the variables could have a significant impact on the figure produced
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85 to $32 later that year, this shows the clear fluctuation
that will have a significant impact on the User Cost, exacerbated by being traded on the Stock
Exchange and by changes on the Forex
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Therefore the User
Cost will different from car to car and year on year, this will mean that the Shadow Price will change
and this could result in economists making error in the cost benefit analysis when determine whether
or not a road should be built or extended
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It is impossible to know whether or
not the individual would have been promoted, or become an entrepreneur and thus it is impossible to
calculate the exact out Lost Output
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Also, although it is possible to quantify the costs to the emergency services, it may take many years
for the total long term costs of a servery injured patient to come to light, causing in accurate value to
be produced
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For example, the decreased equity of a house that was valued
at £100,000 before the airport was built may be reduced to £60,000, however if the housing market
picks up after the airport has been built and the 40,000 compensation paid, then the house may have
increased in value significantly over the following years, but due to the airport being built and thus the
demand in that area is reduced the value of the house may increase less and this may make it difficult
to obtain an close estimate
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The most effective method would be to use a combination, but the single most effective would be the
compensation value as although this method still has many potential variants there are less variant that
would result from other methods such as increased user cost, which is highly dependent on fluctuating
commodity prices
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Therefore the variety of methods are reliable methods to determine the correct value
of the externality, but owning to the significant complexity of determining the Shadow Price the
methods when used together are mostly to give the closest estimate possible

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