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Marginal Cost Controversies in Swedish Transport Infrastructure
KTH, School of Architecture and the Built Environment (ABE), Urban Planning and Environment, Urban and Regional Studies.ORCID iD: 0000-0003-3878-0930
(English)Article in journal (Other academic) Submitted
Abstract [en]

This article analyses pricing and financing policies for road and railroad infrastructure, as these have been reflected in reports from government committees and in government bills in Sweden from the 1920s up to the 2010s. According to an institutional perspective a principle where the full costs of the road and railroad systems are covered by charges paid by the users is appropriate in order to achieve good resource allocation. Viewed through the lens of welfare economics marginal cost based pricing is generally recommended, leading to a situation where the full costs are not covered by the users, other than in congested sections of the systems. These perspectives were analyzed by Coase in two articles from the mid-1940s. The different views and the discussions around them were described as constituting a marginal cost controversy.

Here it is argued that it seems reasonable to interpret the discussion in Sweden around pricing and financing policies related to transport infrastructure as a controversy between the two financing perspectives following Coase’s argument. The controversy seems to have been strongest during the 1970s-1980s. Reasons for the shift from a full cost to a marginal cost policy are discussed. Whether the focus-shift had an impact on the organizational efficiency of the road and railroad agencies is reflected on.

The article offers a deeper understanding of the development of the discussion around the financing and pricing principles for roads and railroads in Sweden since the nationalization-decisions in the 1930s and 1940s. This gives a developed understanding of the policy evolution and a connection to the theoretical perspectives at the time of the nationalization. The formal accuracy of the primary focus during the latest decades on welfare economics as the theoretical basis for financing and pricing policies in the sector might be questioned. These findings can also be useful for the current discussions on alternative financing and organization models for transport infrastructure in many countries. It is important to strike a balance between both an organizational focus and welfare economics in order to achieve efficiency in transport infrastructure systems.

Place, publisher, year, edition, pages
Aalborgs Universitet.
Keyword [en]
Marginal cost, full cost, controversies, government's role
National Category
URN: urn:nbn:se:kth:diva-123590OAI: diva2:628207
Trafikdage 2012, Aalborgs Universtitet

QS 2013

Available from: 2013-06-13 Created: 2013-06-13 Last updated: 2013-06-14Bibliographically approved
In thesis
1. Government's Role for Transport Infrastructure: Theoretical Approaches and Historical Development
Open this publication in new window or tab >>Government's Role for Transport Infrastructure: Theoretical Approaches and Historical Development
2013 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis analyzes and discusses the development of the Swedish government’s role as owner and financier of roads and railroads from the 1930s until the 2010s. The influence on the development of the government’s role from two main theoretical paradigms is discussed and analyzed. These are:

a) neoclassical and welfare economics; and

b) new institutional economic theory with an organizational focus.

The thesis shows that there has been a shift from an institutional view on the organization and financing of the road and railroad systems following the nationalization in the 1930-40s, to a view more based on welfare economics from the 1970s.

Technology, economics and politics are three important factors influencing the development of the transport systems and of the government’s role. In the thesis these factors are covered in a co-evolutionary approach applied for analysis of the historical development. This approach connects to a dynamic view on organizations and firms in institutional theory.

Over time there have been shifts in the strength of the factors (technology, economics and politics) influencing the development. There have also been controversies around financing principles and contradictions between different elements in the policies actually pursued over time. One such controversy has been whether to aim for full cost coverage or for marginal cost coverage.

The thesis discusses how planning and coordination in the transport infrastructure sector can come about. A centralized public sector planner mode is contrasted towards a private sector spontaneous ordering mode. It is argued that it is difficult for a centralized planner to collect the necessary information and transform it into deepened knowledge in order to coordinate. A decentralized spontaneous ordering mode might though allow for including the necessary knowledge.

The thesis illustrates a number of trade-offs that must be taken into consideration when discussing a possible future development for transport infrastructure and the government’s role. The following aspects are discussed:

- the balance between public and private as the basic organizing principle;

- the balance between government and regions/local governments when it comes to

- the geographical division of responsibility; and

- the balance between the national and EU levels for strategic transport infrastructure planning and coordination, also in relation to spontaneous coordination and centralized planning.

The government has acted reluctantly and pragmatically and gradually developed its ownership role and the general policies in the sector. The government’s emphasis on market failure as its basic assumption has become stronger over time.

The thesis brings a deepened understanding of the long-term development of the government’s ownership and policy formation in the transport infrastructure sector in relation to the two theoretical paradigms. This combination of a historical view with the theoretical economic background gives new insights into the past and future of the government’s role for transport infrastructure.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2013. 107 p.
Trita-SOM , ISSN 1653-6126 ; 2013:05
Government, Market, Planning, Transport Infrastructure
National Category
urn:nbn:se:kth:diva-123626 (URN)978-91-7501-765-5 (ISBN)
Public defence
2013-08-26, F3, Lindstedtsvägen 26, KTH, Stockholm, 09:00 (English)

QC 20130614

Available from: 2013-06-14 Created: 2013-06-13 Last updated: 2013-06-14Bibliographically approved

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