Pricing Full Social Costs
In freight transportation, a major debate is whether the freight modes are charged appropriately for the full costs they impose on society. Railroads and pipelines are funded almost entirely by private funds, but highway and water transportation are funded in part through user fees and taxes. For highways these fees and taxes are designed to recover infrastructure costs, not to compensate society for other social costs, such as pollution, congestion, and crashes. When shippers and consumers are not charged the full cost of the services they use, they tend to overconsume them. Moreover, to the extent that one mode is subsidized more than another, the competition between them is not on a level playing field.
The TRB committee that addressed these issues produced a preliminary examination of whether shippers of domestic surface transportation freight pay the full soc
ial costs of the services they use (Special Report 246: Paying Our Way: Estimating Marginal Social Costs of Freight Transportation; TRB 1996). Their report was intended not to provide definitive answers, but to assess the feasibility of making such estimates. In the report the concept of marginal social costs is used to determine whether freight users are subsidized. The marginal social cost of a good being transported is defined as the increase in total social costs that results from producing one additional unit of output above the level currently being produced.
The committee conducted a small number of case studies to examine whether data were available or could be constructed for estimating the marginal social costs of bulk and general cargo shipments by truck, rail, and barge. The case studies revealed that it would be possible to develop reliable estimates. The committee recommended that USDOT fund a much larger number of case studies to develop a sufficiently large sample so that generalizations can be drawn about subsidies in U.S. surface freight transportation.