THE ANNUALIZED SOCIAL COST OF MOTOR-VEHICLE USE in the U. S., 1990-1991:
Summary of Theory, Data, Methods, and Results

Report #1 in the series: The Annualized Social Cost of Motor-Vehicle Use
in the United States, based on 1990-1991 Data

UCD-ITS-RR-96-3 (1)

Mark A. Delucchi

Institute of Transportation Studies

University of California

Davis, California 95616

\(916\) 967-1915 phone and fax

madelucchi@ucdavis.edu

June 1998

Acknowledgments

This report is one in a series that documents an analysis of the full
social cost of motor-vehicle use in the United States. The series is
entitled The Annualized Social Cost of Motor-Vehicle Use in the United
States, based on 1990-1991 Data. Support for the social-cost analysis
was provided by Pew Charitable Trusts, the Federal Highway
Administration (through Battelle Columbus Laboratory), the University of
California Transportation Center, the University of California Energy
Research Group (now the University of California Energy Institute), and
the U. S. Congress Office of Technology Assessment.

Many people provided helpful comments and ideas. In particular, I thank
Patrick DeCorla-Souza, David Greene, Gloria Helfand, Arthur Jacoby, Bob
Johnston, Charles Komanoff, Alan Krupnick, Charles Lave, Douglass Lee,
Paul Leiby, Steve Lockwood, Paul McCarthy, Don McCubbin, Peter Miller,
James Murphy, Steve Plotkin, Jonathan Rubin, Dan Santini, Ken Small,
Brandt Stevens, Jim Sweeney, Todd Litman, and Quanlu Wang for reviewing
or discussing parts of the series, although not necessarily this
particular report. Of course, I alone am responsible for the contents of
this report.

REPORTS IN THE UCD SOCIAL-COST SERIES

There are 21 reports in this series. Each report has the publication
number UCD-ITS-RR-96-3 (#), where the \# in parentheses is the report
number.

Report 1: The Annualized Social Cost of Motor-Vehicle Use in the U.S.,
1990-1991: Summary of Theory, Methods, Data, and Results (M. Delucchi)

Report 2: Some Conceptual and Methodological Issues in the Analysis of
the Social Cost of Motor-Vehicle Use (M. Delucchi)

Report 3: Review of Some of the Literature on the Social Cost of
Motor-Vehicle Use (J. Murphy and M. Delucchi)

Report 4: Personal Nonmonetary Costs of Motor-Vehicle Use (M. Delucchi)

Report 5: Motor-Vehicle Goods and Services Priced in the Private Sector
(M. Delucchi)

Report 6: Motor-Vehicle Goods and Services Bundled in the Private Sector
(M. Delucchi, with J. Murphy)

Report 7: Motor-Vehicle Infrastructure and Services Provided by the
Public Sector (M. Delucchi, with J. Murphy)

Report 8: Monetary Externalities of Motor-Vehicle Use (M. Delucchi)

Report 9: Summary of the Nonmonetary Externalities of Motor-Vehicle Use
(M. Delucchi)

Report 10: The Allocation of the Social Costs of Motor-Vehicle Use to
Six Classes of Motor Vehicles (M. Delucchi)

Report 11: The Cost of the Health Effects of Air Pollution from Motor
Vehicles (D. McCubbin and M. Delucchi)

Report 12: The Cost of Crop Losses Caused by Ozone Air Pollution from
Motor Vehicles (M. Delucchi, J. Murphy, J. Kim, and D. McCubbin)

Report 13: The Cost of Reduced Visibility Due to Particulate Air
Pollution from Motor Vehicles (M. Delucchi, J. Murphy, D. McCubbin, and
J. Kim)

Report 14: The External Damage Cost of Direct Noise from Motor Vehicles
(M. Delucchi and S. Hsu) (with separate 100-page data Appendix)

Report 15: U.S. Military Expenditures to Protect the Use of Persian-Gulf
Oil for Motor Vehicles (M. Delucchi and J. Murphy)

Report 16: The Contribution of Motor Vehicles and Other Sources to
Ambient Air Pollution (M. Delucchi and D. McCubbin)

Report 17: Tax and Fee Payments by Motor-Vehicle Users for the Use of
Highways, Fuels, and Vehicles (M. Delucchi)

Report 18: Tax Expenditures Related to the Production and Consumption of
Transportation Fuels (M. Delucchi and J. Murphy)

Report 19: The Cost of Motor-Vehicle Accidents (M. Delucchi)

Report 20: Some Comments on the Benefits of Motor-Vehicle Use (M.
Delucchi)

Report 21: References and Bibliography (M. Delucchi)

To get copies of the reports:

1). First, you can order hard copies of the reports from ITS:

A. fax: (530) 752-6572

B. e-mail: itspublications@ucdavis.edu

C. ITS web site: http://www.engr.ucdavis.edu/\~its

D. mail: Institute of Transportation Studies, University of California,
One Shields Avenue, Davis, California 95616 attn: publications

For general information about ITS, call (530) 752-6548.

ITS charges for the reports, by the page. The average cost for a report
probably is around \$10

2\) The University of California Transportation Center (UCTC) has posted
Report #1, the summary, on its website, as a PDF file. (They might post
more later). Go to "Delucchi" in the alphabetical list at:

http://socrates.berkeley.edu/\~uctc/text/papersuctc.html

3\) FHWA, Planning Analysis Division, Office of Planning, 400 Seventh
Street, S. W., Rm 3232, Washington, D. C., 20590, has a limited number
of copies of Report #1.

List of acronyms and abbreviations and other names

The following are used throughout all the reports of the series,
although not necessarily in this particular report

AER = Annual Energy Review (Energy Information Administration)

AHS = American Housing Survey (Bureau of the Census and others)

ARB = Air Resources Board

BLS = Bureau of Labor Statistics (U. S. Department of Labor)

BEA = Bureau of Economic Analysis (U. S. Department of Commerce)

BTS = Bureau of Transportation Statistics (U. S. Department of
Transportation)

CARB = California Air Resources Board

CMB = chemical mass-balance \[model\]

CO = carbon monoxide

dB = decibel

DOE = Department of Energy

DOT = Department of Transportation

EIA = Energy Information Administration (U. S. Department of Energy)

EPA = United States Environmental Protection Agency

EMFAC = California's emission-factor model

FHWA = Federal Highway Administration (U. S. Department of
Transportation)

FTA = Federal Transit Administration (U. S. Department of
Transportation)

GNP = Gross National Product

GSA = General Services Administration

HC = hydrocarbon

HDDT = heavy-duty diesel truck

HDDV = heavy-duty diesel vehicle

HDGT = heavy-duty gasoline truck

HDGV = heavy-duty gasoline vehicle

HDT = heavy-duty truck

HDV = heavy-duty vehicle

HU = housing unit

IEA = International Energy Agency

IMPC = Institutional and Municipal Parking Congress

LDDT = light-duty diesel truck

LDDV = light-duty diesel vehicle

LDGT = light-duty gasoline truck

LDGV = light-duty gasoline vehicle

LDT = light-duty truck

LDV = light-duty vehicle

MC = marginal cost

MOBILE5 = EPA's mobile-source emission-factor model.

MSC = marginal social cost

MV = motor vehicle

NIPA = National Income Product Accounts

NOx = nitrogen oxides

NPTS = Nationwide Personal Transportation Survey

OECD = Organization for Economic Cooperation and Development

O3 = ozone

OTA = Office of Technology Assessment (U. S. Congress; now defunct)

PART5 = EPA's mobile-source particulate emission-factor model

PCE = Personal Consumption Expenditures (in the National Income Product
Accounts)

PM = particulate matter

PM10 = particulate matter of 10 micrometers or less aerodynamic diameter

PM2.5 = particulate matter of 2.5 micrometers or less aerodynamic
diameter

PMT = person-miles of travel

RECS = Residential Energy Consumption Survey

SIC = standard industrial classification

SOx = sulfur oxides

TIA = Transportation in America

TSP = total suspended particulate matter

TIUS = Truck Inventory and Use Survey (U. S. Bureau of the Census)

USDOE = U. S. Department of Energy

USDOL = U. S. Department of Labor

USDOT = U. S. Department of Transportation

VMT = vehicle-miles of travel

VOC = volatile organic compound

WTP = willingness-to-pay

Table of contents

Acknowledgments i

REPORTS IN THE UCD SOCIAL-COST SERIES ii

List of acronyms and abbreviations and other names iv

Table of contents vi

1\. THE ANNUALIZED SOCIAL COST OF MOTOR-VEHICLE USE in the U. S.,
1990-1991: Summary of Theory, Data, Methods, and Results 1

1.1 background 1

1.2 Why an analysis of the social cost of motor-vehicle use in the U.S.?
2

1.2.1 The purpose of a social-cost analysis 2

1.2.2 The context 5

1.3 The conceptual framework 6

1.3.1 The annualized cost of motor-vehicle use in the U.S. 6

1.3.2 What counts as a cost of motor-vehicle use or infrastructure? 8

1.3.3 How to interpret "the cost of all motor-vehicle use in the U.S." 8

1.3.4 Benefits versus costs 9

1.3.5 Some minor conceptual issues. 10

1.3.6 Classification of components of the total social cost 11

1.4 Components of the social cost of motor-vehicle use 14

1.4.1 Column 1 of Table 1-1: Personal nonmonetary costs of motor-vehicle
use. 14

1.4.2 Column 2 of Table 1-1: Motor-vehicle goods and services priced in
the private sector (estimated net of producer surplus and taxes and
fees). 15

1.4.3 Column 3 of Table 1-1: Motor-vehicle goods and services bundled in
the private sector 17

1.4.4 Column 4 of Table 1-1: Motor-vehicle infrastructure and services
provided by the public sector. 19

1.4.5 Column 5 of Table 1-1: Monetary externalities of motor-vehicle
use. 20

1.4.6 Column 6a of Table 1-1: Nonmonetary externalities of motor-vehicle
use. 21

1.4.7 Column 6b of Table 1-1: Nonmonetary costs of infrastructure 22

1.4.8 Summary observations regarding Table 1-1 23

1.4.9 The quality of the estimates 24

1.5 the results of the analysis 24

1.5.1 Allocation of costs to individual vehicle categories 24

1.5.2 How the results of this analysis should not be used 25

1.6 Summary 26

1.7 References 28

TABLES AND FIGURES

Table 1-1. Classification of the costs of motor-vehicle use 35

Table 1-2. Efficient pricing of motor-vehicle goods and services 36

Table 1-3. Description of our ratings of the quality and complexity of
our analysis 38

Table 1-4. Personal nonmonetary costs of motor-vehicle use, 1991
(billion 1991\$) 39

Table 1-5. Motor-vehicle goods and services priced in the private sector
(cost estimated net of producer surplus and taxes and fees), 1991
(billion 1991\$) 40

Table 1-6. Motor-vehicle goods and services bundled in the private
sector , 1991 (billion 1991\$) 42

Table 1-7. Motor-vehicle infrastructure and services and services
provided by the public sector, 1991 (109 \$) 43

Table 1-8. Monetary externalities of motor-vehicle use, 1991 (Billion
1991\$) 44

Table 1-9a Nonmonetary externalities of motor-vehicle use, 1990-91
(billion 1991\$) 45

Table continued. (Costs not estimated). 46

Table 1-9b. Nonmonetary environmental and social costs of the
motor-vehicle infrastructure 46

Table 1-10. Summary of the costs of motor-vehicle use 47

Figure 1-1. Social cost-benefit analysis of motor vehicle use 48

APPENDICES

Appendix A. Use of social cost estimates to evaluate the costs of
transportation projects 49

1.A.1 Use of concepts, data, methods, and models 49

1.A.2 Use of unit-cost results derived from detailed cost functions. 49

1.A.3 Use of simple average costs 52

1.A.4 Cost allocation factors 53

Table 1-A1. Summary of the health, visibility, and agriculture cost of
emissions from motor vehicles 55

Table 1-A2. The marginal cost of noise from a 10% increase in VMT, for
different types of vehicles on different types of roads, in urbanized
areas: base-case results (1991\$/1000-VMT) 56

Table 1-A3. Summary of the external costs of oil use (1991\$/end-use
gallon) 57

Table 1-A4. The cost of travel time in motor vehicles
(cents/person-mile) 58

Table 1-A5. Transportation quantities and allocation factors for
gasoline and diesel motor vehicles in the U.S., 1991 59

appendix B. conditions for the existence and efficient operation of
markets 61

1.B.1 Conditions for existence of markets 61

1.B.2 Conditions for efficiency 62

Figure 1-B1. The problem of declining long-run marginal cost 65

Figure 1-B2. Efficiency loss due to monopoly 66

Figure 1-B3. Efficiency loss due to taxes 67

Appendix C. overview of concepts, data, and estimation methods for some
of the cost items in Table 1-1. 68

1.C.1 Column 1 of Table 1-1 68

1.C.2 Column 2 of Table 1-1 69

1.C.3 Column 3 of Table 1-1 72

1.C.4 Column 4 of Table 1-1 72

1.C.5 Column 5 of Table 1-1 75

1.C.6 Columns 6a and 6b of Table 1-1 77

Appendix d. payments by motor-vehicle users for the use of the highway
infrastructure and public motor-vehicle services 81

1.D.1 Current user taxes and fees are not efficient charges for
government-provided motor-vehicle infrastructure and services. 81

1.D.2 An estimate of tax and fee payments 83

Table 1-D1. Payments by motor-vehicle users for the use of the highway
infrastructure and public services related to motor-vehicle use (billion
1991\$) 85

1\. THE ANNUALIZED SOCIAL COST OF MOTOR-VEHICLE USE in the U. S.,
1990-1991: Summary of Theory, Data, Methods, and Results

1.1 background

Every year, Americans drivers spend hundreds of billions of dollars on
highway transportation. They pay for vehicles, maintenance, repair,
fuel, lubricants, tires, parts, insurance, parking, tolls, registration,
fees, and other items. These expenditures buy Americans considerable
personal mobility and economic productivity.

But the use of motor vehicles costs society more than the hundreds of
billions of dollars spent on explicitly priced motor-vehicle goods and
services in the private sector. Some of the motor-vehicle goods and
services provided in the private sector are not priced explicitly , but
rather are bundled in the prices of nontransportation goods and
services. For example, "free" parking at a shopping mall is unpriced,
but it is not costless; the cost is included \-- bundled\-- in the price
of goods and services sold at the mall[^1].

In addition to these priced or bundled private-sector costs, there are
public-sector costs: the tens of billions of dollars spent every year to
build and maintain roads, and to provide a wide range of services that
support the use of motor vehicles. These services include police
protection, the judicial and legal system, the prison system, fire
protection, environmental regulation, energy research and regulation,
military protection of oil supplies, and more.

And finally, beyond these monetary public and private-sector cost are
the nonmonetary costs of motor-vehicle use \-- those costs that are not
valued in dollars in normal market transactions[^2]. There are a wide
variety of nonmonetary costs, including the health effects of air
pollution, pain and suffering due to accidents, and travel time. Some of
these nonmonetary costs, such as air pollution, are externalities;
others, such as travel time in uncongested conditions, are what I will
call personal nonmonetary costs[^3].

The total national social cost of motor-vehicle use is the sum of all of
the costs mentioned previously: explicitly priced private-sector costs,
bundled private-sector costs, public-sector costs, external costs, and
personal nonmonetary costs. These costs are listed and classified more
rigorously in Table 1-1.

Over the past three years, my colleagues and I at the University of
California have been doing a detailed analysis of some of the costs of
motor-vehicle use in the U.S. In this paper, I explain the purpose of
estimating the total social-cost of motor-vehicle use, briefly review
recent research, explain the conceptual framework and cost
classification, and present and discuss our preliminary cost estimates.

1.2 Why an analysis of the social cost of motor-vehicle use in the U.S.?

1.2.1 The purpose of a social-cost analysis

Researchers have performed social-cost analyses for a variety reasons,
and have used them in a variety of ways, to support a wide range of
policy positions. Some researchers have used social-cost analyses to
argue that motor vehicles and gasoline are terrifically underpriced,
while others have used them to downplay the need for drastic policy
intervention in the transportation sector. In any case, social-cost
analyses usually excite considerable interest, if only because nearly
all of us use motor vehicles.

By itself, however, a social-cost analysis does not determine whether
motor-vehicle use is good or bad, or better or worse than some
alternative, or whether it is wise to tax gasoline or restrict
automobile use or encourage travel in trains. Rather, a social-cost
analysis is but one of many pieces of information that might be useful
to transportation analysts and policymakers.

A social-cost analysis can provide several kinds of information, which
can be used for several purposes. A social-cost analysis can provide: i)
general cost data, references, methods, and cost models[^4]; ii)
marginal unit-cost estimates derived from detailed cost models (e.g.,
\$/kg of pollutant emitted; see Appendix A); and iii) simple estimates
of total cost and average cost (which is total cost divided by total
quantity). These data, models, unit costs, and results can help
analysts: i) evaluate the costs of transportation projects, policies,
and long-range scenarios; ii) establish efficient prices for and ensure
efficient use of transportation services and commodities; and iii)
prioritize research and funding.

Use #1: Evaluate the costs of transportation projects, policies, and
long-range scenarios. In cost-benefit analyses, policy evaluations, and
scenario analyses, analysts must quantify changes to and impacts of
transportation systems. The extent to which a generic national
social-cost analysis can be of use in the evaluation of specific
projects or policies depends, of course, on the detail and quality of
the social-cost analysis. At a minimum, a detailed, original social-cost
analysis can be mined as a source of data, methods, and models for cost
evaluations of specific projects. Beyond this, if costs are a linear
function of quantity, and invariant with respect to location, then
estimates of national total or average cost, which any social-cost
analysis will produce, may be used to estimate the incremental costs for
specific projects, policies, or scenarios[^5]. (Average-cost estimates
are more likely to be useful for long-range, broad-brush scenario
analysis than for specific project evaluations.) Otherwise, analysts
must estimate the actual nonlinear cost functions for the project,
policy, or scenario at hand. Our own social-cost analysis does develop
total-cost models for noise, air pollution, accidents, and a few other
components of the social cost[^6].

It turns out that most total cost functions for transportation services,
commodities, and impacts are nonlinear and location-dependent. For
example, the nonmonetary costs of air pollution are a nonlinear function
of motor-vehicle pollution, and congestion delay costs are a nonlinear
function of motor-vehicle travel. Both vary with time and location.

Still, even though most costs of motor-vehicle use are not strictly a
continuous linear function of quantity, down to the mile or gram or
decibel or minute[^7], in at least some scenarios of relatively large
changes in motor-vehicle use the average-cost ratio might be a
serviceable approximation of the actual long-run [^8] marginal ratio of
interest. For example, our own analysis of the health costs of air
pollution, in Report #11, reveals that, in most cases, there is not a
great difference between the nonlinear dose-response functions that we
use and a linear dose-response function.

Appendix A discusses further the use of social-cost estimates to
evaluate the costs of transportation projects, policies, and long-range
scenarios.

Use #2: Establish efficient prices for and ensure efficient use of those
transportation resources or impacts that at present either are not
priced but in principle should be (e.g., emissions from motor vehicles)
or else are "priced" but not efficiently (e.g., roads).

An efficient price is equal to marginal cost, which is the slope of the
total-cost function. Hence, any cost models in a social-cost analysis in
principle may be employed to estimate marginal-cost prices. (As
mentioned above, we have estimated total-cost functions for some of the
many cost items in our own social-cost analysis.) Beyond this, the
average-cost results of a social-cost analysis might give analysts some
idea of the magnitude of the gap between current prices (which might be
zero, as in the case of pollution) and theoretically optimal prices, and
inform discussions of the types of policies that might narrow the gap
and induce people to use transportation resources more efficiently. And
to the extent that total-cost functions for the pricing problem at hand
are thought to be similar to any simple linear national cost functions
of a social-cost analysis, the average-cost results of the national
social-cost analysis may be used to approximate prices for the problem
at hand.

Use #3: Prioritize efforts to reduce the costs or increase the benefits
of transportation. The total-cost or average-cost results of a
social-cost analysis can help analysts and policymakers rank costs (is
road dust more damaging than ozone?), track costs over time (is the cost
of air pollution going down?), and compare the costs of pollution
control with the benefits of control (are expenditures on motor-vehicle
pollution control devices greater or less than the value of the
pollution eliminated?). This information can help people decide how to
fund research and development to improve the performance and reduce the
costs of transportation. For example, if one is considering funding
research into the sources, effects, and mitigation of pollution, it
might be useful to know that road-dust particulate matter might be an
order of magnitude more costly than is ozone attributable to motor
vehicles.

I present our analysis and estimates with these relatively modest
purposes in mind[^9], not to promote a particular policy agenda
regarding the use of motor vehicles, and certainly not to forward any
particular position about what, for example, gasoline taxes "should be",
or whether the nation should invest more or less in motor-vehicle use
than it is now.

1.2.2 The context

Interest in full social-cost accounting and socially efficient pricing
has developed relatively recently. From the 1920s to the 1960s, major
decisions about building and financing highways were left to "technical
experts," chiefly engineers, who rarely if ever performed social
cost-benefit analyses. Starting in the late 1960s, however, "a growing
awareness of the human and environmental costs of roads, dams, and other
infrastructure projects brought the public's faith in experts to an end"
(Gifford, 1993, p. 41). It was a short step from awareness to
quantification of the costs not normally included in the narrow
financial calculations of the technical experts of the past.

Today, the call for full-social-cost accounting and efficient pricing is
being sounded in many sectors of the economy, from transportation to the
chemical industry (e.g., Popoff and Buzzelli, 1993). In transportation,
discussions of efficient pricing and full-social cost accounting now are
routine. For example, in a recent summary of views on high-speed ground
transportation in the U. S., two of the four authors suggest that the
cost of high-speed rail (HSR) should be compared with the full,
unsubsidized costs of the alternatives, including auto and air travel
(Stopher, 1993; Thompson, 1993).

Not surprisingly, however, there is little agreement about the proper
items in a social-cost analysis, the magnitude of the major components
of the social cost, or the extent to which present prices are not
optimal. On the one hand, many recent analyses argue that the "unpaid"
or external costs of motor-vehicle use are quite large \-- perhaps
hundreds of billions of dollars per year \-- and hence that automobile
use is heavily "subsidized" and underpriced (e.g., MacKenzie et al.,
1992; Miller and Moffet, 1993; Behrens et al., 1992; California Energy
Commission, 1994; Apogee Research, 1993; COWIconsult, 1991; KPMG Peat
Marwick Stevenson & Kellog, 1993; Ketcham and Komanoff , 1992; Litman,
1994). But, not unexpectedly, others have argued that this is not true.
For example, the National Research Council (NRC), in its review and
analysis of automotive fuel economy, claims that "some economists argue
that the societal costs of the 'externalities' associated with the use
of gasoline (e.g., national security and environmental impacts) are
reflected in the price and that no additional efforts to reduce
automotive fuel consumption are warranted" (NRC, 1992, p. 25). In
support of this, the NRC cites the following statement by Michael
Boskin, chairman of the Council of Economic Advisors at the time (July
10, 1991):

"With respect to the price of gasoline, the issue is really what the
difference is between social cost and private cost. We already have a
substantial amount of taxation at the Federal and State levels and there
will be phased in increases in the Federal gasoline taxes\...The
Administration has no belief that externalities or social premiums that
ought to be paid go beyond what's already on the books and scheduled to
be implemented over the next year or so" (in NRC, 1992, p. 25)[^10].

Green (1995) makes essentially the same argument. Beshers (1994) makes
the narrower claim that road-user tax and fee payments at least equal
government expenditures related to motor-vehicle use. Similarly, in a
November 1992 election in California, supporters of a proposition that
would have prevented the State of California from charging tolls on toll
roads after 35 years argued that the tolls would be superfluous because
"gas taxes are set at a level to pay for needed improvements \-- but no
higher" (Lockyer and Hill, 1992, p. 19). Opponents countered that
"subsidies to the automobile total \$300 billion in the United States
every year. Less than two-thirds of the cost of our federal highway
system is paid for by user fees such as gas taxes\...Highway users
should have to pay for the cost of building, operating, and maintaining
the highways" (Thompson and Tomlach, 1992, p. 19). But Dougher (1995)
actually argues that road-user payments exceed related government
outlays by a comfortable margin.

I could cite other examples. This extraordinary disagreement exists
because of the wide range of conceptual frameworks, methods, data, and
assumptions. Although there are detailed, original, and conceptually
correct analyses of individual cost items (e.g., air pollution \[Small
and Kazimi, 1995; Krupnick et al., 1997\], and accidents \[Miller et
al., 1991\]), analyses of costs in particular localities in the U. S.
(e.g., Apogee Research, 1994); original and conceptually correct
analyses of the external costs of transport in Europe \[e.g., Mayeres et
al. \[1996\]), and detailed but old analyses of the social costs of
transportation in the U. S. (e.g., Keeler et al. \[1975\]), nobody has
done a detailed, up-to-date, conceptually sound analysis of all of the
major costs in the U.S. With few exceptions, the recent estimates in the
current literature are based on literature reviews, often studies that
are relatively old, or superficial, or of limited applicability.
Moreover, some of the current work is confused about the meaning of
"externality," "opportunity cost," and other economic concepts. As a
result, the current literature is of limited use to policymakers and
analysts.

In light of this, my colleagues and I set out to do original,
methodologically sound estimates of many of the major components of the
total social cost of motor-vehicle use. We devoted considerable effort
to developing a conceptually coherent framework, gathering the best
primary data, and using appropriate analytical methods.

1.3 The conceptual framework

1.3.1 The annualized cost of motor-vehicle use in the U.S.

When I speak of the social cost of motor-vehicle use, I mean the
annualized social cost of motor vehicle use in the U.S. based on
1990-1991 cost levels [^11]. The annualized cost of motor-vehicle use,
based on 1990-1991 data, is equal to the sum of:

• 1990-1991 periodic or "operating" costs, such as fuel, vehicle
maintenance, highway maintenance, salaries of police officers,
travel-time, noise, injuries from accidents, and disease from air
pollution; plus

• the 1990-91 replacement value of all capital, such as highways,
parking lots, and residential garages (i.e., tems that provide a stream
of services), converted into an equivalent stream of annual costs
(annualized) over the life of the capital, on the basis of real discount
rates[^12].

This annualization method \-- whereby the total yearly cost is equal to
periodic "operations and maintenance costs" plus annualized capital
replacement costs \-- is just the obverse of evaluating the net present
value of alternative investment options (in transportation or any other
arena). In essence, the yearly social-cost of motor vehicle use, as we
estimate it, is the yearly cost stream of the whole motor-vehicle
system, analyzed as if it were one large transportation alternative
among several. Of course, the scale that we have chosen \-- all
motor-vehicle use \-- is just a convenient point of reference. (That is,
one just as well could view the analysis presented here as an analysis
of a generic motor-vehicle-use project, or alternative, scaled up to the
level of all motor vehicle use in the U. S.)

In any event, there is no coherent alternative to the annualization (or
net-present-value) approach to estimating the social cost. Either one
performs a social-cost analysis as a project evaluation, or one doesn't
have a well-defined analysis[^13]. If (somehow) we fail to amortize
capital costs, or do so incorrectly, or in general don't treat capital
and operating costs in an economically consistent fashion, we will not
have economically meaningful results, and might then incorrectly
evaluate alternatives or mis-price goods and services. Although these
concepts are quite elementary, in practice it can be easy to lose sight
of them, and misapply widely used data, such as the FHWA data on capital
expenditures (see the discussion in Report #2).

1.3.2 What counts as a cost of motor-vehicle use or infrastructure?

In economic analysis, "cost" means "opportunity cost". The opportunity
cost of action A is the opportunity you forego \-- what you give up, or
use, or consume as a result of doing A. For some resource R to count as
a cost of motor-vehicle use, it must be true that a change in
motor-vehicle use will result in a change in use of R. Thus, gasoline is
cost of motor-vehicle use because a change in motor-vehicle use will
result in a change in gasoline use, all else being equal. But general
spending on health and education is not a cost of motor-vehicle use
because a change in motor-vehicle use will not result in a change in
resources devoted to health or education.

However, for the purposes of planning, evaluating, or pricing, we care
not only whether something is a cost of motor-vehicle use, but, if it is
a cost, exactly how it is related to motor-vehicle use. For example,
pollution is a direct, immediate cost of motor-vehicle use: you change
motor-vehicle use a little, and you immediately change pollution a
little. But defense expenditures in the Persian Gulf, if they are a cost
of motor-vehicle use at all, are an indirect, long-term, and tenuous
one. This is discussed more below.

1.3.3 How to interpret "the cost of all motor-vehicle use in the U.S."

If one wishes to apply the estimates of the total cost of all
motor-vehicle use, or to understand the basis for deciding what is
included in our list of costs in Table 1-1, then one might ask what is
meant by the cost of all motor-vehicle use: all motor-vehicle use
compared to what?

In normal cost-benefit analysis of transportation projects, one
estimates costs and benefits relative to a well defined "no-project"
alternative, or base case. For example, one might compare a
highway-expansion project with a light-rail project relative to a base
case of "business as usual" improvement in the management of the
existing infrastructure[^14]. But if the "project" is all motor-vehicle
use, what is the base case \-- the world without motor-vehicle use?

In this analysis, the world without motor-vehicle use is presumed to be
the same as the world with motor-vehicle use, except that in the former
people don't use motor-vehicles. This means that the benefits of
motor-vehicle use \-- the access provided \-- are presumed to be the
same in both worlds. Put another way, the total social cost of
motor-vehicle use is the welfare difference between the present (ca.
1991) motor-vehicle system, and a system that provides exactly the same
services (that is, moves people and goods too and from the same places
as do motor vehicles) but without time, manpower, materials, or energy
\-- in short, without cost[^15].

This costless transportation baseline is just a frame of reference, a
conceptual baseline with respect to which total costs trends can be
estimated, or the total costs of one system (say, passenger vehicles)
compared with the costs of another (say, passenger trains). Moreover, it
is relevant only to understanding the meaning of the total cost
estimates themselves; it is not relevant if one is interested
specifically in the data, methods, and marginal-cost models of the
social-cost analysis, for the purpose of estimating efficient prices
(say, for motor-vehicle emissions), or doing cost-benefit analysis of
specific projects.

This last point, obvious though it may be, probably cannot be
overemphasized. If one is interested in, say, establishing Pigovian
taxes to internalize the damages from motor-vehicle emissions, then one
probably will wish to examine the details of the damage-function model
that produces estimates of the \$/kg cost of emissions, as a function of
the change in emissions. One will not care about our estimate of the
total dollar damages due to air pollution from motor-vehicles in 1990.
Thus, insofar as one is interested in the details of our analysis, and
not in the total-cost estimates themselves, the question "total cost
compared to what?" never arises.

1.3.4 Benefits versus costs

In this project, we estimate the dollar social cost but not the dollar
social benefit of motor-vehicle use. More precisely, we identify,
classify, and quantify many of the impacts and resources of
motor-vehicle use[^16]. The social cost of motor-vehicle use is the
value of the resources devoted to motor-vehicle use. (In this context,
"resources" should be broadly construed to include health, esthetic,
environmental, and similar impacts of motor-vehicle use.) In Figure 1-1,
the total social cost is the area under the social supply curve, S\*
(region O-x\*-Q\* if we are at the social optimum, with all
externalities internalized; region O-x'-Q if we are at the private
market optimum, with external costs extant).

The social benefit of motor-vehicle use is the value that beneficiaries
ascribe to motor-vehicle use \-- in economic parlance, the total
"willingness to pay" for motor-vehicle use. Total willingness to pay is
the area under the demand curve, D, of Figure 1-1 (region O-A-x\*-Q\*).
The difference between the total benefit and the total cost, region
O-A-x\* of Figure 1-1, is the net benefit of motor vehicle use. (The net
benefit can be negative, of course.) Net social benefit, or the ratio of
social benefit to social cost, is the ultimate measure of economic
worth. In cost-benefit analysis, the preferred package of policies or
investments is the one that generates the highest net benefits for the
available budget[^17].

Again, ours is a cost analysis, not a cost-benefit analysis. Of course,
we have not forgotten that there are benefits of motor-vehicle use[^18],
and certainly have not presumed that the benefits somehow are less
important than the costs. To the contrary, as I discuss in Report #20,
it is obvious that motor-vehicle use is enormously beneficial, and that
its total social benefit vastly exceeds its cost[^19]. The problem is
that, although it is possible to estimate the benefits of small changes
in motor-vehicle use, it is very difficult to estimate credibly the
benefits of all motor-vehicle use. The root of the problem is that we do
not know what the total demand curve looks like near zero quantity:
trips by car for which there are no good substitutes must be extremely
valuable, but precisely how valuable we don't know. Because this is a
cost analysis only, we are unable to say much about net dollar benefits
or cost-benefit ratios, or whether a particular transportation system or
plan is worthwhile, or better or worse than another system or plan. For
example, this analysis indicates that motor-vehicle use might cost us
more than people realize; that is, that the total social cost
appreciably exceeds the commonly recognized private cost. But even if
this is so, it does not mean that motor-vehicle use costs society more
than it is worth, or that we should prefer any transportation option
that might have near-zero external costs, or even any transportation
option that might have lower total social costs. To make such choices,
one must estimate the dollar value of all the benefits as well as the
dollar value of all the costs, for all of the relevant policies or
investment alternatives.

1.3.5 Some minor conceptual issues.

There are other minor conceptual issues worth mentioning. One is that
the cost/quantity function for increases in motor-vehicle use might be
different than for decreases. Another is that for some of the government
services (say, police protection) that support motor-vehicle use,
long-run cost might be a non-linear function of some measure of
cost-related activity (say, crimes or arrests). In the extreme, cost
might be a step-function of activity, such that over some range of
activity, the cost of changes in activity might be zero. But one should
be careful here, because many small changes in activity, each change by
itself not large enough to reach the next cost step, may together create
enough additional use to reach the next cost step. Put another way, the
problem with assuming that any particular change does not have a cost is
that, in the absence of information to the contrary, the starting point
for any change is just as likely to be very close to the next cost step
as very far, which means that it is just as likely that an infinitesimal
change in use will occasion the entire cost of the step as a much bigger
change in use will occasion no cost at all. To avoid this mistake, an
analyst should treat a step function as a continuous function, which is
tantamount to using average cost as a proxy for marginal cost over the
relevant range. This is an advantage of an average-cost analysis.

1.3.6 Classification of components of the total social cost

There are many components of the social cost of motor vehicles use, and
one naturally has the urge to classify them. But should these components
be classified or organized in any particular way? It seems sensible to
organize cost components in consonance with how the cost estimates will
be used. Thus, if one were interested only in estimating the total
social cost of motor-vehicle use, and did not care at all about how the
estimates might be used, then actually one would not need to categorize
the components of the social cost. One would just estimate and perhaps
add up every component of the social cost. This, however, would not be
of much use to anybody.

As discussed above, estimates of total social cost of motor-vehicle use
legitimately can be used for three purposes: i) to evaluate the costs of
transportation projects, policies, and long-range scenarios; ii) to
establish efficient prices for and ensure efficient use of
transportation services and commodities; and iii) to prioritize research
and funding. Of these uses, only the second one, efficiency of use ,
comes with a set of principle and conditions \-- namely, the conditions
of efficient resource use \-- that can be used to categorize costs.
Consequently, if one wishes one's social-cost estimates to be useful to
policymakers who want improve the efficiency of the use of the
transportation system[^20], then one should categorize and analyze cost
items with respect to the economic efficiency of their production or
consumption. I have done so here.

In Table 1-1, I also use other organizing criteria, such as whether or
not a cost is valued in dollars (this is discussed more below), and end
up with six categories of costs. Of course, one could come up with other
classifications, even using the same general organizing principles. One
could, for example, merge or split some of my categories.

Classification with respect to the efficiency condition marginal social
value equals price equals marginal social cost. Resources are used
efficiently when the marginal value to society (MSV) equals the market
price (P) equals marginal cost to society (MSC). However, most real
markets do not allocate resources efficiently, according to MSV = P =
MSC, because at a minimum most production and consumption involves some
sort of externality, and most prices are influenced by distortionary
(non-optimal) taxes. In fact, there are a variety of reasons that a
market might not allocate resources optimally, or what is worse, why no
private market might exist. These reasons \-- the reasons for
inefficiencies \-- are a natural organizing principle for a social-cost
analysis, because there are prescriptions for every kind of
inefficiency. To organize costs with respect to efficiency or
inefficiency of allocation is tantamount to organizing costs with
respect to prescriptions for maximizing efficiency. This is useful to
policymakers.

In Appendix B, I review the conditions required for markets to exist and
allocate resources efficiently, and what happens if the conditions are
not met. Here, I emphasize an important general point. It is generally
true that, for society to use resources efficiently, each individual who
makes a resource-use decision must count as a cost of that use
everything that in fact is an opportunity cost from the standpoint of
society. It does not matter whether or not motor-vehicle users as a
class pay for a particular cost generated "within" the class; what
matters is whether or not each individual decision maker recognizes and
pays the relevant social marginal-cost prices. If the responsible
individual decision maker does not account for the cost, it does not
matter then who actually pays for it, fellow user or non-user; the
resource \[usually\] is misallocated, regardless of who pays.

To account for a cost, a consumer must know its magnitude and be
required or feel obliged to bear it. Generally, a price accomplishes
both of these things: it tells the consumer what he must give up in
order to consume the item[^21].

This emphasis on price, and on individual resource-use decisions, keeps
the analysis properly focused on economic efficiency. In an analysis of
efficiency, one must not think of motor-vehicle users as a class, and
imagine that the distinction between users and non-users as a class is
relevant. It is not. The class distinction may be relevant to questions
of equity, but it certainly is not relevant to questions of
efficiency[^22].

A methodological organizing criterion. I have included in Table 1-1 a
classificatory criterion that has to do not with economic efficiency,
but rather with methods of estimating costs: "monetary" versus
"nonmonetary" costs. The distinction here is not between cost items that
"ought" to be valued in dollars and costs that ought not, nor between
efficiently and inefficiently priced items, but rather between cost
items that are traded in real markets and hence valued directly in
dollars, and items that are not.

Although this distinction is not directly relevant to efficiency of
resource use, it is relevant to the practical estimation of social cost.
Abstractly, the social cost of any item X (tires, roads, disturbance by
noise, suffering from asthma caused by air pollution\...) is equal to
the quantity of X (number of tires, miles of roads, excess decibels of
exposure, days of suffering asthma) multiplied by the unit cost of X
(\$/tire, \$/road-mile, \$/excess decibel, \$/day of suffering). In
Table 1-1, the distinction between "monetary" and "nonmonetary" costs
pertains to the estimation of the \$/unit part of the calculation of
social costs. An item is classified as a "monetary" cost if we can
observe or estimate its \$/unit cost (or value) directly from market
transactions. Thus, because we can observe the \$/unit cost of tires,
and the \$/mile cost of building roads, tires and roads are classified
as monetary costs. By contrast, we cannot observe directly the unit cost
of noise or air pollution (\$/decibel, or \$/day of suffering), because
noise disturbance and suffering per se are not traded and valued in
markets[^23].

The distinction is methodologically important because (obviously) it is
much more difficult to estimate the \$/unit cost of nonmonetary items
than of monetary items[^24]. Although economists have a variety of
techniques (e.g., hedonic-price analysis and stated-preference analysis)
to estimate the \$/unit costs of (or demand curves for) nonmonetary
items, all of the techniques can be problematic, and as a result the
social nonmonetary costs of motor-vehicle use often are very uncertain
\-- typically, much more uncertain than are the monetary costs[^25].

Other conceptual and methodological issues are explored in more detail
in Report #2 of this social-cost series (see the list at the beginning
of this report). I turn now to the six general cost categories of Table
1-1.

1.4 Components of the social cost of motor-vehicle use

1.4.1 Column 1 of Table 1-1: Personal nonmonetary costs of motor-vehicle
use.

Personal nonmonetary costs are those unpriced costs of motor-vehicle use
that a person imposes on herself as a result of her decision to travel.
The largest personal costs of motor-vehicle use are personal travel time
in uncongested conditions, and the risk of getting into an accident that
(loosely speaking) involves nobody else.

Note the distinction between personal nonmonetary costs (column 1) and
externalities of the same sort (column 6). Personal costs are caused and
borne by the same party, whereas externalities are imposed by one party
on another but not accounted for by the imposing party. The \[expected
value of the\] risk that I will cause an accident and injure myself is a
personal nonmonetary cost; the risk that someone else will injure me is
an external risk, if the other person does not account for it. The
congestion delay that others impose on me is an external cost; the rest
of my travel time is a personal nonmonetary cost. These distinctions are
relevant to policy making because personal costs are unpriced[^26] but
efficiently allocated if consumers are informed and rational, whereas
externalities are unpriced and inevitably a source of inefficiency[^27].
As discussed below and indicated in Table 1-2, the usual prescription
for externalities is a Pigovian[^28] tax, whereas the "prescription" for
a personal cost (whether caused by the affected party or not) is just
that the affected party be fully aware of it. Thus, any individual
should be charged for the accident or travel time costs he imposes on
others, and be fully aware of the costs that he himself faces as a
result of using a motor-vehicle.

If an individual does not correctly assess the personal costs to
himself, then he will consume more or less than he would have had he
been fully informed and rational. For example, there is evidence that
most drivers overestimate their alertness and driving skill, and
underestimate their chances of getting into an accident (DeJoy, 1989).
To the extent that they do, they underestimate the expected personal
cost of driving, and make more trips, or more risky trips, then they
would if they were properly apprised of their abilities and chances.

Report #2 in this series contains further discussion of the
classification and interpretation of personal nonmonetary costs. In that
report, I note that it is more sensible to classify the costs of drunk
driving and motor-vehicle crime not as external costs within a framework
of economic efficiency, but as costs of immoral and illegal behavior,
within a broader framework that classifies costs by non-efficiency as
well as efficiency concerns.

Personal nonmonetary costs are estimated in Report #4 of this
social-cost series. Appendix C of this report provides an overview of
some of the concepts, data, and estimation methods for some of the cost
items in this column.

1.4.2 Column 2 of Table 1-1: Motor-vehicle goods and services priced in
the private sector (estimated net of producer surplus and taxes and
fees).

The economic cost of motor-vehicle goods and services supplied in
private markets is the area under the private supply curve: the value of
the resources that a private market allocates to supplying vehicles,
fuel, parts, insurance, and so on.

However, we do not observe the supply curve itself, and so cannot
estimate the area under the supply curve directly. Rather, we must
estimate this area indirectly, starting from what we can observe: total
price-times-quantity revenues. Thus, the private-sector resource cost
under the supply curve is equal to price-times-quantity revenues minus
producer surplus and taxes and fees. We deduct producer surplus[^29]
because it is defined as revenue in excess of economic cost, and hence
is a non-cost wealth transfer from consumers to producers[^30]. We
deduct taxes and fees assessed on producers and consumers because in no
case are they marginal-cost prices that can be used in a
price-times-revenue calculation of costs[^31].

Note that this is not merely theoretical twaddle: it bears directly on
comparisons of alternatives. For example, in comparing the cost of oil
with the cost of alternative energy sources, it will not do to count all
price-times-quantity oil revenues as the cost, because the true private
resource cost is much less than this, on account of the enormous
producer surplus that accrues to some oil producers.

The prices and quantities that obtain in private markets rarely are
optimal \-- that is, the actual prices (P) paid rarely satisfy MSV = P =
MSC \-- not only because of distortionary taxes and fees, but because of
imperfect competition, standards and regulations that affect production
and consumption, price controls, subsidies, quotas, externalities, and
poor information. For example, the market for crude oil is not always
competitive. The reason, of course, is that the Organization of
Petroleum Exporting Countries (OPEC) sometimes manages to restrict oil
output and thereby raise oil price above marginal cost. This is
inefficient from the standpoint of the world because it cuts off
production of oil that could be produced for less than the \[formerly\]
prevailing market price and hence from a social-efficiency standpoint
should be produced and consumed[^32] (see Figure 1-B2). One also can
argue that other industries, such as the automobile manufacturing
industry, at times look oligopolistic[^33].

Standards and regulations also can be economically inefficient. For
example, the cost of vehicles and fuels includes items, such as
catalytic converters and airbags and perhaps lightweight materials, used
to meet government standards for emissions, safety, and fuel economy.
Now, if the government standards are not the most efficient corrective,
then the corresponding resources (for catalytic converters, air bags,
etc.) are not efficiently allocated. Of course, it is well known that,
transaction costs and uncertainty aside (and these admittedly are big
asides), Pigovian taxes indeed are more efficient than are standards.
However, Pigovian taxes can be more expensive to administer, less
predictable, and more difficult to change on short notice, to the point
that standards might be preferable in some and perhaps many situations
(Baumol and Oates, 1988). It thus is not necessarily always the case
that in the real world standards and regulations are less efficient than
Pigovian regulations[^34].

Finally, consumers can be ignorant and irrational. For example, some and
perhaps many people routinely underestimate the probability that they
will be in an accident, and as a result undervalue safety equipment in
motor vehicles.

In sum, then, it certainly is not true that all private markets are
perfect and should be left alone. Rather, there are a variety of
imperfections, in every sector of the economy, including the most
competitive, unregulated private sectors. As a result, we face a range
of analytical and policy issues pertaining to pricing, taxation,
regulation, and so on.

The costs of priced private-sector goods and services are estimated in
Report #5 of this social-cost series. Appendix C of this report provides
an overview of some of the concepts, data, and estimation methods for
some of the cost items in this column.

1.4.3 Column 3 of Table 1-1: Motor-vehicle goods and services bundled in
the private sector

Some of the motor-vehicle goods and services provided in the private
sector are not priced explicitly , but rather are bundled in the prices
of nontransportation goods and services. For example, "free" parking at
a shopping mall is unpriced, but it is not costless; the cost is
included \-- bundled\-- in the price of goods and services sold at the
mall. Similarly, residential garages are not sold as separate
commodities, but rather are included in the total price of a home. In
the United States, nearly all parking, commercial and residential, is
bundled. Some local roads also are bundled, usually with the cost of a
home.

Parking. The typical motor vehicle is driven less than one hour every
day. The rest of the time, it is parked. In the U.S., a considerable
amount of resources are devoted to providing parking for nearly 200
million vehicles parked for 23 hours a day. As estimated in Appendix A
of Report #6, parking spaces for vehicles consume on the order of 2,000
to 3,000 square miles of land. More importantly, most of the roughly
\$100-billion resource cost of parking is not priced as a separate
charge for parking, but rather is bundled with other goods, such as
items at a shopping center, or a family's home, and priced as a package.

There are several ways to classify and analyze parking: on street versus
offstreet, commercial versus residential, publicly versus privately
owned and operated, parking garage versus parking lot, and more. In this
social-cost series, parking costs are classified and estimated as
follows:

Type of parking space

a\. Priced

b\. Unpriced (bundled)

i\. on-street parking

publicly owned

Report #7 (included with cost of public roads)

Report #7 (included with cost of public roads)

privately owned

Report #5 (assume zero, or with private roads)

Report #6 (private roads)

ii\. off-street loading ramp or commercial driveway

publicly owned

not estimated

not estimated

privately owned

not estimated

not estimated

iii\. unimproved land[^35]

publicly owned

assume zero

assume zero

privately owned

assume zero

assume zero

iv\. offstreet residential

publicly owned

Report #5 (assume zero)

Report #7 (assume zero)

privately owned

Report #5

Report #6

v\. offstreet nonresidential

publicly owned

Report #7

Report #7

privately owned

Report #5

Report #6

Bundled private-sector parking costs (i-b, iv-b, and v-b) are classified
in column 3 of Table 1-1, and estimated in Report #6. In that report we
develop our estimates in detail, with special attention to important and
uncertain parameters, such as the number of offstreet, non-residential
parking spaces, the cost of parking spaces, the number of residential
garages and parking spaces, the fraction of residential parking space
actually used by cars, and maintenance and repair expenditures for
garages. We also discuss the reasons for and efficiency implications of
the practice of bundling parking.

Other bundled costs. Report #6 also presents rough estimates of the cost
of local roads funded by private parties and included in the price of
homes.

Although there are benefits to unbundling a commodity and pricing it
explicitly, there also can be costs, and as a result it is not
necessarily true that bundling is inefficient. For example, although
priced parking generally is supplied and used more efficiently than is
unpriced (bundled) parking, there is a cost to actually administering a
pricing system, and this transaction cost may exceed the benefit of more
efficient use of parking. One must do a complete social cost-benefit
analysis, in which transaction costs are included, to determine if
bundling is superior to pricing. If the decision to bundle can be
distorted by such things as minimum parking requirements and tax laws
that do not count free parking for employees as a taxable benefit, the
ideal solution is to eliminate the inefficient taxes and standards, and
not necessarily force parking costs to be unbundled. See Report #6, and
Gomez-Ibanez (1997) for further discussion.

Appendix C of this report provides an overview of some of the concepts,
data, and estimation methods for some of the cost items in this column.

1.4.4 Column 4 of Table 1-1: Motor-vehicle infrastructure and services
provided by the public sector.

The public sector provides a wide range of infrastructure and services
in support of motor-vehicle use. I use data on government expenditures
for capital and operations and maintenance, and estimates of
motor-vehicle-related activity in various cost categories (police
protection, fire protection, and so on), to estimate the long-run
annualized capital cost and annual operating and maintenance cost of
this motor-vehicle-related infrastructure and service. I categorize
these public-sector costs separately because governments, unlike private
firms, do not charge efficient prices for their goods and services.

Note that some cost items straddle columns 4 and 5. In at least one
respect, the distinction between column 4 and column 5 is somewhat
arbitrary: items in column 4 are priced but not priced efficiently (or
as efficiently as is possible), whereas items in column 5 are not priced
at all. The distinction is somewhat arbitrary because whether there is
an inefficient charge or no charge at all, the result is similar:
inefficient use of resources[^36]. Nevertheless, for several reasons, it
is useful and natural to distinguish improperly priced from unpriced
items. In the first place, analyses of social cost often are framed
around the distinction between private costs and external costs, wherein
external costs are unpriced and completely unaccounted for by consumers.
Thus, to identify pure externalities, one must distinguish unpriced from
improperly priced items. Second, analysts and policymakers need to know
which items are being charged for already, but incorrectly, versus which
items are not being charged for at all, because generally it will be
easier to correctly charge for the former group than the latter. Third,
much of the motor-vehicle-related infrastructure and service provided by
the public sector is priced, but not efficiently. Thus, if one wants to
identify public infrastructure and service costs charged at least partly
to motor-vehicle users \-- and it certainly seems natural to do so \--
one must distinguish improperly priced from unpriced costs.

This distinction does make for a messy classification, though, because
it is difficult to decide which taxes or fees are payments for which
public services. For example, as I argue in Report #17, the portion of
the motor-fuel tax that is officially dedicated to deficit reduction
should be counted as a payment by motor-vehicle users for motor-vehicle
use, regardless of the actual legislative earmarking. But to which
publicly provided motor-vehicle services does it apply? Fire protection
related to motor-vehicle use? Highway construction only? Defense of oil
interests? The answer is a matter of judgment, and as a result, whether
a particular public service is priced inefficiently or instead is
completely unpriced also a matter of judgment. I have placed in column 4
those public infrastructure and service items that by law are funded at
least partly by taxes fees on motor-vehicle use. The rest of the items
\-- those that are not definitely and universally understood to be
funded by motor-vehicle users \-- straddle columns 4 and 5.

Of course, whereas all government expenditures on highways and the
highway patrol are a cost of motor-vehicle use, only a portion of total
government expenditure on local police, fire, jails, and so on, is a
cost of motor-vehicle use. I have estimated the portion of these
expenditures that, in the long run anyway, is a cost of motor-vehicle
use. This sort of allocation is valid for expenditures (such as for
police protection) that arguably are opportunity costs of motor-vehicle
use. (For example, using or having motor-vehicle goods, services, and
infrastructure has some effect on crime, which requires
police-protection services.)[^37]

Note that our estimates of total public-sector costs include the
annualized cost of the capital stock. Because capital is foregone
(liquidated, not replaced, or not expanded) only in the long run, and
only as a result decisions by public officials, the costs estimated here
are long-run costs of public decision making.

Government expenditures are estimated in Report #7 of this social-cost
series. Appendix C of this report provides an overview of some of the
concepts, data, and estimation methods for some of the cost items in
this column.

1.4.5 Column 5 of Table 1-1: Monetary externalities of motor-vehicle
use.

An external cost of motor-vehicle use is a cost of motor-vehicle use
that is imposed on person A by person B but not accounted for by person
B (but see the more formal definition in the next section). A monetary
external cost is one that happens to be valued monetarily by markets, in
spite of being unpriced from the perspective of the responsible
motor-vehicle user. The clearest example, shown in column 5 of Table 1,
is accident costs that are paid for by those not responsible for the
accident. These repair costs, inflicted by uninsured motorists, clearly
are unpriced in the first instance \-- that is, unpriced from the
perspective of the uninsured motorist responsible for the accident \--
but nevertheless are valued explicitly in dollars in private markets.
With respect to economic efficiency, the concern here is that the costs
in this category are not priced at all, and hence are larger than is
socially optimal.

The largest monetary externalities are those resulting from accidents
and travel delay.

Monetary externalities are estimated in Report #8 of this social-cost
series. Appendix C of this report provides an overview of some of the
concepts, data, and estimation methods for some of the cost items in
this column.

1.4.6 Column 6a of Table 1-1: Nonmonetary externalities of motor-vehicle
use.

I follow Baumol and Oates (1988), and state that a nonmonetary
externality is present when agent A chooses the value of \[a\]
nonmonetary variable\[s\] in agent B's utility or production
relationships without considering B's welfare. Thus, by this definition,
"externality" is synonymous not with "damage," but with "unaccounted for
cost". A nonmonetary externality is one that is not valued directly by
economic markets. Environmental pollution, traffic delay, and pain and
suffering due to accidents are common examples of nonmonetary
externalities.

Environmental costs include those related to air pollution, global
warming, water pollution, and noise due to motor vehicles. To estimate
these costs, one must model complex physical processes and biological
responses, and then estimate the dollar value of the responses.

The economic problem created by externalities is the classic divergence
between private cost and social cost, discussed above and illustrated in
Figure 1-1. As indicated in Table 1-2, the usual prescription for
nonmonetary externalities is to assign property rights, bargain, or
apply a dynamic Pigovian tax on the perpetrator or emissions
source[^38], with no direct compensation of the victim. The definition,
treatment, and estimation of external costs is discussed in more detail
Report #9 of this social-cost series.

In this report, I have distinguished nonmonetary externalities, which
are nonmonetary costs inflicted, even if only indirectly, by
motor-vehicle user A on party B and not accounted for by A, from
personal nonmonetary costs, which are inflicted by a motor-vehicle user
on herself. I also might have distinguished a third kind of nonmonetary
or environmental-damage cost: that inflicted by motor-vehicle user A on
party B but accounted for by A as a marginal cost of motor-vehicle use.
When an externality is properly taxed, it becomes this third type of
cost. (One perhaps could argue that once a \[formerly\] nonmonetary cost
is properly taxed, it becomes a monetary cost, but this is merely
semantics.) Thus, the third category would consist of true Pigovian
taxes.

However, there are at most only three quasi-Pigovian taxes related to
motor-vehicle use: 1) the portion of the oil-spill environmental excise
tax that covers costs other than clean-up costs; 2) the tax, which
Barthold (1994) says is "Pigovian," on ozone-depleting chemicals; and 3)
the gas-guzzler tax, which arguably is partly a tax on energy-security
costs. However, the oil-spill tax and the gas-guzzler tax probably are
not equal to marginal expected damages, and hence probably are not true
Pigovian taxes, and the tax on ozone-depleting chemicals now is largely
irrelevant because new automobiles use a more ozone-friendly refrigerant
that is not subject to the tax. For these reasons, I have not created a
separate category called "properly taxed, efficiently allocated
environmental damages".

Note that, if one were tallying the marginal social cost and found that
there were optimal Pigovian taxes, one would count either the tax or the
value of the actual marginal damage, but not both, because if the tax
had been calculated correctly it would equal the damage[^39]. Note too
that the cost of pollution control equipment cannot be construed as a
Pigovian tax: the economic cost of pollution-control equipment is the
value of the resources used to make and operate control equipment,
whereas a correct Pigovian tax is equal to the marginal cost of the
remaining \[post-control\] pollution. In a social-cost analysis control
costs and post-control damage costs are additive, not equivalent.

Nonmonetary externalities are estimated in Report #9 of this social-cost
series. Appendix C of this report provides an overview of some of the
concepts, data, and estimation methods for some of the cost items in
this column.

1.4.7 Column 6b of Table 1-1: Nonmonetary costs of infrastructure

Note that I have classified the nonmonetary social and environmental
impacts of the motor-vehicle infrastructure in part b of column 6,
separate from the non-monetary externalities of motor-vehicle use.
Although these infrastructure costs ultimately are a long-run cost of
total motor-vehicle use, they are not a cost of marginal or incremental
motor-vehicle use, because they do not vary with each mile or trip.
Hence, infrastructure costs are not externalities of motor-vehicle use,
according to our definition of "externality", and for this reason are
categorized separately from external costs. Note too that we we have not
estimated any of these environmental costs of infrastructure. (One
should not presume, though, that omitted costs necessarily are trivial.)

1.4.8 Summary observations regarding Table 1-1

Divergence between price and marginal social cost increases from left to
right. One perhaps can argue that, in general terms, the "typical"
divergence between the marginal social cost and the actual price (or the
marginal social value) in each column of Table 1-1 increases as one
moves from column 1 to column 6. For the items in the first column,
there is little or no divergence between marginal social cost and
marginal social value; for those in the last column, the price is zero
but the marginal social cost can be considerable.

Long-run vs. short run and direct vs. indirect costs. In order to keep
Table 1-1 manageable, I have not distinguished in the table between
costs incurred immediately as a result of motor-vehicle use (one might
call these "direct short-run" costs), and costs incurred in the long
run, or only indirectly, as a result of motor-vehicle use. However,
these distinctions are important.

Motor vehicle use does not give rise to costs "automatically," according
to some immutable laws of physics or to the logic of mathematics, but
rather is linked to costs \-- to particular effects, or changes in
actual resource consumption \-- by physical, economic, or political
processes. Some links are direct and almost immediate. For example,
motor-vehicle use is linked directly by combustion processes to
motor-vehicle emissions of CO, emissions of CO in turn are linked
directly by atmospheric processes to ambient levels of CO, and ambient
levels of CO are linked statistically, by behavioral and biological
processes, to headaches. In this case, the linkage between use and cost
(headaches) is largely physical, and almost immediate.

Of course, linkages can be much more attenuated than this. For example,
the linkage between motor-vehicle use and a change in refinery emissions
is more complicated than the linkage between motor-vehicle use and a
change in motor-vehicle tailpipe emissions, because there are
intervening economic as well as physical processes. In theory, a change
in motor-vehicle use will change quantity and hence price in the market
for gasoline, which in turn will affect price in the market for crude
oil, which in turn will affect price in the market for other petroleum
products (such as heating oil). In theory, refinery owners will adjust
to the price changes by changing the mix and amount of refinery
products. This economically induced change in output will be linked
physically to changes in refinery emissions, which in turn will be
linked to ambient pollution and then to health effects. And all of this
is a theoretical simplification: in reality, political factors and
economic variables other than price will be important too.

But the linkages between motor-vehicle use and cost can be even more
tenuous: they can depend not only price changes, which at least in
economic theory are "mechanisms," but on the decisions of public
policymakers as well. Consider the links between motor-vehicle use and
defense expenditures in the Middle East. First, the change in motor-fuel
use will change demand for oil, but not barrel for barrel, because
prices of and hence demand for other petroleum products will change. The
change in demand for oil might change demand for oil imported from the
Middle East, depending on the price of domestic versus imported oil,
sunk costs, contractual arrangements, political conditions, and other
factors. Congress then might notice any change in oil imports from the
Middle East, and then might decide that it means that the U.S. cares
less about the region and need not devote as many resources to policing
it. Such government decisions make the link between motor-vehicle use
and military expenditures especially remote.

Although Table 1-1 does not make these distinctions, they nevertheless
are important because the more tenuously linked costs are harder to
estimate, often are lagged considerably with respect to the causal
changes in motor-vehicle use, and often depend greatly on the specific
characteristics and amount of the change in motor-vehicle use. The
upshot is that it is especially dubious to use willy-nilly, in any
context, our estimates of the total or average cost of the more
tenuously linked costs.

1.4.9 The quality of the estimates

Table 1-1 lists nearly 50 individual components of the total social cost
of motor-vehicle use. For some of these cost components, we were able to
develop original, reasonably detailed estimates. However, in many other
cases we simply took estimates from the literature or made educated
guesses. Thus, there is quite a wide range in the quality of our
estimates. In order to provide an overview of the quality of our
estimates, and help readers understand initially which estimates are
sound and which are little better than guesswork (and of course which
are in-between), we have rated each of our estimates. The rating system
is delineated in Table 1-3, and the ratings are presented in Tables 1-4
to 1-9. (Note that the rating system presented in Table 1-3 is very
similar but not identical to the rating system used in the literature
review of Report #3.)

1.5 the results of the analysis

The results of this analysis are shown by individual cost item in Tables
1-4 to 1-9, and summarized by aggregate cost category in Table 1-10. The
cost items correspond to those in Table 1-1. I show the aggregated
totals here in order to provide a sense of magnitudes, not because such
aggregated totals are themselves useful. Indeed, as discussed next, one
must be careful to avoid misusing estimates of the total social-cost of
motor-vehicle use.

As stated in the notes to Tables 1-4 to 1-9, the estimates are detailed
in the other reports of this social-cost series (listed at the beginning
of this report).

1.5.1 Allocation of costs to individual vehicle categories

All of the costs shown in Tables 1-4 to 1-9 pertain to all motor
vehicles: all autos, trucks, and buses. Although it can be interesting
to estimate the cost of all motor-vehicle use, it typically will be more
useful to estimate the cost of different classes of vehicles or of
different fuel types, because analysts, policymakers, and regulators
typically are interested in specific classes of vehicles, and specific
fuels, rather than all motor-vehicles as a group. (For example,
pollution regulations are set for individual classes of vehicles, not
for all motor vehicles as a class.)

For some cost items, such as the some of the costs of air pollution, we
have estimated marginal costs by individual vehicle class (see Report #9
in this social-cost series). In most cases, though, we have not actually
estimated costs by vehicle class. However, we have developed simple
cost-allocation factors, which can be used to apportion or disaggregate
some total costs to specific vehicle and fuel classes. These factors are
developed in Report #10 of the social-cost series, and summarized here
in Appendix A and Table 1-A5.

1.5.2 How the results of this analysis should not be used

Earlier in this report, I explain the proper uses of a social-cost
analysis. In this section, I caution against several common misuses of
estimates of the total social cost.

First, one should resist the temptation to add up all of the unpriced
costs, and express the total per gallon of gasoline, as if the optimal
strategy to remedy every inefficiency were simply to raise the gasoline
tax. Rather, as indicated in Table 1-2, the various kinds of
inefficiencies, or market failures or imperfections, require various
kinds of remedies. In fact, it turns out that there is not a single
external cost, with the possible exception of CO2 emissions from
vehicles, that in principle is properly addressed by a gasoline tax.

In the first place, some sources of inefficiency, such as imperfect
competition and distortionary income tax policy, are not externalities,
and hence should be addressed not by Pigovian taxation, but by ensuring
that the markets are competitive and only minimally distorted by
taxation. Similarly, it is not theoretically ideal (in a first-best
world), to force privately provided free parking to be priced; rather,
one should amend any tax and regulatory policies that distort the
pricing and bundling decisions of private suppliers.

Even where Pigovian taxation is called for, a tax on gasoline is not the
proper application. For example, an optimal air pollution tax would be a
function of the amount and kind of emissions, the ambient conditions,
and the size of the exposed population; it would not be simply
proportional to gasoline consumption. Similarly, an optimal congestion
charge would be a dynamic function of traffic conditions. Costs that
arise from the use of particular sources of oil, such as oil imported
from the Middle East, should be addressed at the source, not at the
level of all gasoline end use. And in any case, it is not even
necessarily true, in the real and far-from-first-best world of
regulations, standards, taxes, imperfect taxes, poor information,
imperfect competition, and so on, that the optimal emissions tax is
equal to the cost of the marginal residual emissions (Burtraw et al.,
1993)[^40].

Second, I caution that it might be misleading to compare the total
social cost of motor-vehicle use with the Gross National Product (GNP)
of the United States, because the GNP accounting is quite different from
and generally more restricted than our social-cost accounting. For
example, the GNP does not include any non-market items, which constitute
a substantial portion of the social cost estimated here.

Third, one should properly represent and interpret the considerable
uncertainty in any estimate of social cost. Uncertainty can be
represented by low-high ranges, scenario analyses, probability
distributions, and other techniques. Our analysis presents low and high
estimates of cost. Yet, strictly speaking, these estimates are not lower
and upper bounds, even where the high is much higher than the low,
because we did not estimate every conceivable component or effect of
every cost, and did not always accommodate the entire span of data or
opinions in the literature. Moreover, we do not know how probable the
higher and lower values are, or even if the higher is more probable than
the lower; in fact, we do not know anything about the probability
distribution of the estimated total cost. We can not even offer a "best"
guess between our low and high estimates.

Fourth, as discussed in Appendix D, it is not economically meaningful to
compare estimates of user tax and fee payments for public motor-vehicle
goods and services with estimates of government expenditures for same.
Most emphatically, it simply is not true that, in order to have the
economically optimal amount and use of public motor-vehicle goods and
services, the revenues collected from the present system of user charges
must equal government expenditures. It is not true because the present
taxes and fees look nothing like efficient marginal-cost prices, and
because in any case it is not a necessary or sufficient condition of
economic efficiency that the government collect from users of the
highway infrastructure revenues equal to expenditures. Comparisons
between present user payments and present government expenditures are
relevant only to concerns about equity (See Appendix D for further
discussion.)

Finally, given that ours is an analysis of the total social cost of
motor-vehicle use, whereas any particular policy or investment decision
will involve costs incremental or decremental to the total, one should
not use our average-cost estimates in marginal analyses, unless, as
discussed above, one believes that the total-cost function is
approximately linear and hence that any marginal-cost rate is close to
the average rate. Certainly, our results will become less and less
applicable as one considers times and places increasingly different from
the U.S. in 1990 and 1991. However, I note that, even if our results per
se are irrelevant, our data, methods, concepts, and cost models might be
useful in an analysis of specific pricing policies or investments.

1.6 Summary

We have classified and estimated the social costs of motor-vehicle use
in the U. S., on the basis of 1990-1991 data. Our analysis is meant to
inform general decisions about pricing, investment, and research. It
provides a conceptual framework for analyzing social costs, develops
analytical methods and data sources, and presents some detailed
first-cut estimates of some of the costs.

By now it should be clear that a social-cost analysis cannot tell us
precisely what we should do to improve our transportation system. There
are several kinds of inefficiencies in the motor-vehicle system, and
hence several kinds of appropriate correctives. Many of our estimates
are simply too generic or uncertain to be of much use \-- as hard
numbers \-- to policymakers and analysts faced with specific problems.
Moreover, society cares at least as much about equity, opportunity, and
justice as it does about economic efficiency. At the end of the day, a
total social-cost analysis contributes only modestly to but one of
several societal objectives for transportation.

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Sacramento, California, May (1991).

Table 1-1. Classification of the costs of motor-vehicle use

Place holder for table. Table number here is active.

Table 1-2. Efficient pricing of motor-vehicle goods and services

Private-sector costs

Bundled private-sector costs

Public-sector infrastructure and services

Externalities

Factors affecting efficient marginal-cost pricing

General taxes and subsidies; controls on quantity or price; non-optimal
standards; imperfect competition

High transaction costs of unbundling and establishing prices; tax and
regulatory disincentives to charging for parking; perceived economic
benefits of free parking and roads

Possible indivisibility in consumption (MC = 0; e.g., defense);
decreasing long-run costs (e.g., some roads); government is concerned
with generating revenue, encouraging or discouraging certain behaviors,
distributing benefits, providing security and justice, and other things
besides economic efficiency

Impossible, or too costly, or otherwise undesirable to assign and
enforce property rights to the unpriced resources or effects (hence, no
price)

Prescriptions

Set taxes to minimize deadweight losses (or use lump-sum transfers
instead of taxes); set standards such that MCC = MDC; remove controls on
price and quantity; break up monopolies and oligopolies; and so on

If there are no external benefits to unbundling, and no distorting
taxes, and if transaction costs cannot be lowered and private
assessments are not wrong, then do nothing; otherwise, remove tax and
regulatory disincentives to unbundling, and remove any institutional
barriers to private ownership and operation of roads

Turn ownership over to private sector, where possible and efficient;
short-run marginal-cost pricing, where possible (highway use charges set
equal to marginal wear and tear plus congestion costs; registration and
license fees set at marginal administration costs; parking priced at
marginal cost; etc.); lump-sum transfers to finance any "public good"
portion of highway infrastructure and services

If feasible, establish property rights; otherwise, if few are involved,
then do collective bargaining; otherwise, levy a dynamica tax, at the
source, equal to marginal external costs \[damage costs not accounted
for\], but do not compensate victims

Notes: see next page.

Notes to Table 1-2.

See also Appendix E of FHWA (1982), the Congressional Budget Office
(1992), and Gillen (1997) The Federal Railroad Administration (1993)
lists many pricing and mitigation strategies to address environmental
externalities and "social costs" of transportation systems. MC =
marginal cost; MCC = marginal control cost; MDC = marginal damage cost.

Note that the prescriptions generally all must be satisfied at once in
order to achieve Pareto-optimal resource use. The general theory of the
"second best" tells us that, in the real world in which many of the
conditions for Pareto optimality are not satisfied, it is not
necessarily best to satisfy just one additional condition. For example,
given non-optimal emissions standards, emissions regulations, and fees
and taxes on automobile producers, it is not necessarily true that it is
most efficient to assess a Pigovian tax equal to the marginal cost of
the residual emissions.

aIn most cases, damage is a nonlinear function of output, with the
result that the marginal damage rate (the slope of the total damage
function) changes with the level of output. In these cases, the Pigovian
tax will have to be iterated to stay equal to the marginal damage rate,
because the initial application of the Pigovian tax will change the
output and hence the marginal damage. Such an iterated tax is a
"dynamic" tax.

Table 1-3. Description of our ratings of the quality and complexity of
our analysis

Quality of our analysis

Rating

Detailed and largely original analysis, with extensive calculations
based mainly on primary data. Primary data include: original censuses
and surveys of population, employment and wages, government
expenditures, manufacturing, production and consumption of goods and
services, travel, energy use, and crime; financial statistics collected
by government agencies, such as the Internal Revenue Service and state
motor-vehicle departments; measured environmental data, such as of
ambient air quality and visibility; surveys and inventories of physical
infrastructure, such as housing stock and roads; and the results of
empirical statistical analyses, such as epidemiological analyses of air
pollution and health.

A1

Detailed and original analysis based mainly on primary data, but less
involved than level A1 analysis (see A1 for examples of primary data).

A2

Straightforward analysis based partly or mainly on primary data, with
few and relatively simple calculations. Less involved than A2 analysis.

A3

Direct use of a few primary data, with no significant analysis,
calculations, or adjustments. A simple citation of primary data.

A4

Review and analysis of existing estimates of the whole cost or its major
components. The difference between B work and A work is that A work is
based mainly on primary data, such as from government surveys or data
series or physical measurements (see above), whereas B work is more
dependent on the secondary literature (i.e., on someone else's original
analysis of some major components of the social cost). However, the
analysis in B work can be more extensive than that in A3 and certainly
A4 work.

B

Review of a few existing estimates, with little or no analysis. This is
essentially a literature review.

C

Estimate or simple, illustrative calculation based ultimately on
supposition or judgment. Whereas C work cites a substantive analysis or
estimate of the cost under consideration, D work is based on judgment
without reference to any direct estimate of the cost or its major
components.

D

Table 1-4. Personal nonmonetary costs of motor-vehicle use, 1991
(billion 1991\$)

Cost item

Low

High

Qa

Travel time, excluding travel delay imposed by others, that displaces
unpaid activities

406.8

629.0

A2

Accidental pain, suffering, death, and lost nonmarket productivity
inflicted on oneself

70.2

227.0

A2/B

Personal time spent working on motor vehicles and garages, and refueling
motor vehicles

49.5

109.6

A3

Personal time spent buying and selling and disposing of vehicles,
excluding dealer costs

0.8

2.6

A3

Motor-vehicle noise inflicted on oneself

included with external noise costs

Motor-vehicle air pollution inflicted on oneself

included with external pollution costs

Total

527.3

968.2

See Report #4 for details.

aQ = Quality of the estimate (see Table 1-3).

Table 1-5. Motor-vehicle goods and services priced in the private sector
(cost estimated net of producer surplus and taxes and fees), 1991
(billion 1991\$)

Cost item

Low

High

Qa

Usually included in GNP-type accounts

Annualized cost of the entire motor-vehicle car and truck fleet,
excluding sales taxesb

269.2

350.2

A3

Cost of transactions for used cars

12.7

12.7

A3

Parts, supplies, maintenance, repair, cleaning, storage, renting,
towing, etc.b

159.9

188.1

A3

Motor fuel and lubricating oil, excluding excise and sales taxes and
fuel costs attributable to travel delay

74.9

82.2

A2

Motor-vehicle insurance: administrative and management costs

36.7

36.7

A4

Priced private commercial and residential parking, excluding parking
taxes

3.2

3.2

A3

Usually not included in GNP-type accounts

Travel time, excluding travel delay imposed by others, that displaces
paid work

190.1

229.1

A2

Overhead expenses of business, commercial, and government fleets

90.3

112.9

A3

Private monetary costs of motor-vehicle accidents, excluding user
paymentsc

65.7

65.6

A2/B

Motor-vehicle user payments for the cost of motor-vehicle accidents
inflicted on others

55.7

58.8

A4/D

Deduction for property damage, and motor-vehicle insurance
administration costs counted elsewhere (as private monetary costs here,
or as external monetary costs)

(65.2)

(74.8)

A2/B

Deduction for embedded taxes included in the price-times-quantity
estimates above

(59.8)

(57.6)

A2/A3

Deduction for bundled parking costs included in cost of any industries
above, but counted separately here as a bundled parking cost

(6.4)

(26.6)

D

Total

826.9

980.4

See Report #5 for details.

aQ = Quality of the estimate (see Table 1-3).

bThese figures include costs related to motor-vehicle accidents. Because
these costs also are counted in the line "private monetary costs of
motor-vehicle accidents", they are deducted in a separate line
("Deduction for property damage\..."), to avoid double counting.

cThe figure under "Low" might be higher than the figure under "High"
because a total estimated accident cost is allocated to the different
cost categories on the basis of low and high externality fractions,
whereby "Low" means low external cost \-- and hence high private or
personal cost \-- and "High" means high external cost.

Table 1-6. Motor-vehicle goods and services bundled in the private
sector , 1991 (billion 1991\$)

Cost item

Low

High

Qa

Annualized cost of non-residential offstreet parking included in the
price of goods or services or offered as an employee benefit

48.5

162.2

A2

Annualized cost of home garages, carports, and other residential parking
included in the price of housing

15.4

40.6

A2

Annualized cost of roads provided or paid for by the private sector and
recovered in the price of structures, goods, or services

11.8

75.9

A3, Db

Total

75.7

278.7

See Report #6 for details.

aQ = Quality of the estimate (see Table 1-3 ).

bA simple calculation involving some solid numbers and some guesswork.

Table 1-7. Motor-vehicle infrastructure and services and services
provided by the public sector, 1991 (109 \$)

10% \_MVUa

100% \_MVUa

Cost item

Low

High

Low

High

Qb

Annualized cost of public highways, including on-street parking and
private off-site investment in roads

9.99

18.66

99.9

186.6

A2

Annualized cost of municipal and institutional offstreet parking

n.e.

n.e.

11.9

19.8

A2/3

Highway law enforcement and safety, as estimated by FHWA

0.45

0.70

7.4

8.7

A3

Other police-protection costs (not included in FHWA estimates) related
to motor-vehicle use

0.10

0.47

0.8

4.1

A2

Fire-protection costs related to motor-vehicle use

0.07

0.27

0.7

2.8

A2

Emergency-service costs of motor-vehicle accidents included in police
and fire costs above

(0.17)

(0.17)

(1.1)

(1.1)

A2/B

Judicial and legal-system costs related to motor-vehicle use

0.46

0.59

4.8

6.2

A2

Jail, prison, probation, and parole costs related to motor -vehicle use

0.39

0.61

3.9

6.2

A2

Regulation and control of air and water pollution and solid waste,
related to motor-vehicle use

0.17

0.56

2.1

5.9

A2

Energy and technology research and development related to motor-vehicle
use

n.e.

n.e.

0.3

0.5

A3

Motor-vehicle related costs of other government agencies

n.e.

n.e.

0.1

0.1

D

Military expenditures related to the use of Persian-Gulf oil by motor
vehicles

n.e.

n.e.

0.6

6.8

B, Dc

Annualized cost of the SPR: investment, operation and management, and
oil-holding costs

0.01

0.06

0.1

0.7

A2

Total

n.e.

n.e.

131.4

247.1

aCosts are shown for a 10% reduction in motor-vehicle use, and a 100%
reduction (Report #7).

bQ = Quality of the estimate (see Table 1-3).

cA review and analysis of the literature with a good deal of
supposition.

Table 1-8. Monetary externalities of motor-vehicle use, 1991 (Billion
1991\$)

Cost item

Low

High

Qa

Monetary costs of travel delay imposed by others: foregone paid work

9.1

30.5

A2

Monetary costs of travel delay imposed by others: extra consumption of
fuel

2.3

5.7

A2

Accident costs not accounted for by economically responsible party:
property damage, medical, productivity, legal and administrative costs

26.0

28.0

A2/B

Expected loss of GNP due to sudden changes in the price of oil

1.8

31.5

C \[A1\]

Price effect of using petroleum fuels for motor vehicles: increased
payments to foreign countries for oil used in other sectors

3.8

8.0

A3

Monetary, non-public-sector costs of net crimes related to using or
having motor-vehicle goods, services, or infrastructure

0.1

0.4

A3

Monetary costs of injuries and deaths caused by fires related to
motor-vehicle use

0.0

0.1

A3

Total

43.1

104.2

See Report #8 for details.

aQ = Quality of the estimate (see Table 1-3). Ratings in brackets refer
to the quality of the analysis in the literature reviewed.

Table 1-9a Nonmonetary externalities of motor-vehicle use, 1990-91
(billion 1991\$)

Cost item

Low

High

Qa.

Accidental pain, suffering, death, and lost nonmarket productivity not
accounted for by economically responsible party

9.5

97.7

A2/B

Travel delay, imposed by others, that displaces unpaid activities

22.5

99.3

A2

Air pollution: human mortality and morbidity due to particulate
emissionsb from vehicles

16.7

266.4

A1

Air pollution: human mortality and morbidity due to all other pollutants
from vehicles

2.3

17.1

A1

Air pollution: human mortality and morbidity, due to all pollutants from
upstream processes

2.3

13.0

A1

Air pollution: human mortality and morbidity, due to road dust

3.0

153.5

A1

Air pollution: loss of visibility, due to all pollutants attributable to
motor vehicles

5.1

36.9

A1

Air pollution: damage to agricultural crops, due to ozone attributable
to motor vehicles

3.3

5.7

A1

Air pollution: damages to materials, due to all pollutants attributable
to motor vehicles

0.4

8.0

B \[A1\]

Air pollution: damage to forests, due to all pollutants attributable to
motor vehicles

0.2

2.0

B \[A2\]

Global warming due to fuel-cycle emissions of greenhouse gases (U. S.
damages only)

0.5

9.2

A1, B \[A1\]c

Noise from motor vehicles

0.5

15.0

A1

Water pollution: health and environmental effects of leaking motor-fuel
storage tanks

0.1

0.5

D

Water pollution: environmental and economic impacts of large oil spills

0.2

0.5

C \[A1\]

Water pollution: urban runoff polluted by oil from motor vehicles, and
pollution from highway deicing

0.7

1.7

Dd

Nonmonetary costs of net crimes related to using or having motor-vehicle
goods, services, or infrastructure

0.7

2.8

A3

Nonmonetary costs of fires related to using or having motor-vehicle
goods, services, or infrastructure

0.0

0.2

A3

Table continued. (Costs not estimated).

Air pollution: damages to natural ecosystems other than forests, due to
all pollutants attributable to motor vehicles

n.e.

n.e.

n.a.

Environmental and esthetic impacts of motor-vehicle waste

n.e.

n.e.

n.a.

Vibration damages from motor vehicles

n.e.

n.e.

n.a.

Fear and avoidance of motor vehicles and crimes related to motor-vehicle
use

n.e.

n.e.

n.a.

Total

68.0

729.6

Table 1-9b. Nonmonetary environmental and social costs of the
motor-vehicle infrastructure

Cost item

Low

High

Qa

Land-use damage: habitat destruction and species loss due to highway and
motor-vehicle infrastructure

n.e.

n.e.

n.a.

The socially divisive effect of roads as physical barriers in
communities

n.e.

n.e.

n.a.

The esthetics of highways and service establishments

n.e.

n.e.

n.a.

Total

n.e.

n.e.

See Report #9 for details. n.e. = not estimated; n.a. = not applicable.

aQ = Quality of the estimate (see Table 1-3). Ratings in brackets refer
to the quality of the analysis in the literature reviewed.

bIncludes secondary PM, formed from direct emissions of SOx, NOx, and
NH3.

eThe estimate of fuelcycle emissions of greenhouse-gases is original and
detailed (A1), whereas the estimate of the \$/ton cost of emissions is
based on a review of literature (B) that features detailed original
calculations (\[A1\]).

dThis is my estimate of the cost as of 1997. As discussed in the text,
the cost probably was higher in 1991, because the leakage-prevention and
clean-up programs were not in place everywhere. I speculate that the
external costs in 1991 were three times the costs today.

Table 1-10. Summary of the costs of motor-vehicle use

Total cost (109 \$)

Percentage of total

Low

High

Low

High

\(1\) Personal nonmonetary costs of motor-vehicle use

\$527

\$968

32%

29%

\(2\) Motor-vehicle goods and services produced and priced in the
private sector (estimated net of producer surplus, taxes, fees)

\$827

\$980

49%

30%

\(3\) Motor-vehicle goods and services bundled in the private sector

\$76

\$279

5%

8%

\(4\) Motor-vehicle infrastructure and services provided by the public
sectora

\$131

\$247

8%

7%

\(5\) Monetary externalities of motor-vehicle use

\$43

\$104

3%

3%

\(6\) Nonmonetary externalities of motor-vehicle use

\$68

\$730

4%

22%

Grand total social cost of highway transportation

\$1,673

\$3,308

100%

100%

Subtotal: monetary cost only (2+3+4+5)

\$1,077

\$1,610

64%

49%

For details, see other summary tables in this report, the text in this
report, and other reports in the social-cost series.

aIncludes items in Table 1-1 that straddle columns 4 and 5.

Figure 1-1. Social cost-benefit analysis of motor vehicle use

Appendix A. Use of social cost estimates to evaluate the costs of
transportation projects

In an evaluation of the costs of specific transportation projects, the
social-cost analysis presented here may be used in three ways:

1). The concepts, data, methods, and models of this analysis may be used
to develop specific, marginal-cost estimates or functions for a
particular project. This in principle is the best use of our analysis.

2). The marginal (but "generic") unit-cost results (e.g.,
\$/kg-pollutant) derived from detailed cost functions or models in this
analysis may be used directly to calculate total costs for a particular
project, as delineated below. However, the greater the divergence
between the conditions to which the "generic" marginal unit-cost
estimates of our analysis apply and the conditions of the particular
project at hand, the less appropriate it is to use the unit-cost results
directly.

3). Least preferably, and generally only given an inability to do 1) or
2), an analyst may calculate simple average-cost figures (e.g., \$/mile)
from the results presented here, and use them to estimate total costs
for the project hand (e.g., by multiplying \$/mile by VMT). This usually
will not be not defensible for anything other than broad-brush planning.

1.A.1 Use of concepts, data, methods, and models

If one wishes to make detailed, accurate cost estimates for the project
at hand, then one should not use the cost results of this social-cost
analysis at all, but rather should use this series of reports as an
analytical guide, and source of data and references, for the
construction of project-specific cost models and functions. For example,
one can use Report #14 to construct a model of noise damages, Report #12
to construct a model of agricultural costs, the travel-time data and
functions of Report #4 in an analysis of the cost of congestion, the
accident rate and cost functions of Report #19 in an analysis of
accident costs, and the cost functions of Report #7 to estimate the cost
of government services related to motor-vehicle use.

1.A.2 Use of unit-cost results derived from detailed cost functions.

In some cases, we have derived marginal unit-cost measures from our
detailed cost models. Because these are marginal measures derived from
detailed models, they generally will be more accurate, or
representative, than will simple, average-cost measures (such as
\$/mile).

In Reports 11, 12, and 13, we use detailed cost models to estimate the
health, agricultural, and visibility costs of air pollution per kg of
pollutant emitted from motor vehicles. Because the \$/kg value depends
to some extent on the level of pollution (because of the nonlinearity of
the damage functions), we estimate these \$/kg figures for a 10%
reduction and a 100% reduction in motor-vehicle emissions. The \$/kg
estimate multiplied by a kg/mi emission rate and then by total VMT will
generate an estimate of total cost. Table1-A1

[^1]: I do not imply that bundling necessarily is inefficient, and that
    parking, for example, must be priced. This is discussed more later,
    and in Report #6.

[^2]: In some cases, one can estimate shadow prices or implicit values
    of nonmarket goods by using valuation techniques such as hedonic
    price analysis.

[^3]: Also, some of the monetary costs included in the \$800 billion of
    private expenditure actually are externalities. I discuss this more
    below.

[^4]: Cost models relate total dollar cost to transportation quantities,
    such as vehicle-miles of travel, trips, vehicles, fuel consumption,
    highway-miles, or parking spaces, and to non- transportation
    parameters, such as weather or geography.

[^5]: The average unit cost is equal to the total cost of the entire
    system divided by some measure of total use (quantity, or output),
    and so is expressed in terms of \$/vehicle-mile of travel (VMT),
    \$/trip, \$/vehicle, etc. The marginal or incremental unit cost is
    the cost of an increment to the total system divided by the
    incremental quantity. Given this, we may scale our estimate of the
    total social cost of the entire system to an estimate of the cost of
    an increment to the system only if average unit costs are close to
    marginal unit costs.

[^6]: Ideally, we would estimate, for every quantity (pollution, VMT,
    trips, vehicles, parking spaces..), functions that relate the social
    dollar cost to the quantity, and that include all the parameters
    that might be relevant in any situation, so that we could calculate
    the social cost of any small, realistic, specific change in
    motor-vehicle use. And in many of the important cases, we actually
    have done this: for example, we have cost/quantity functions for
    noise, air pollution, accidents, and some government services. These
    total cost functions, in which a cost such as air pollution is a
    continuous, often nonlinear function of an "output" such as
    emissions, can be used directly to estimate the cost of any size
    change in the output. In some other cases (e.g., the cost of home
    garages), we have provided an estimate of marginal rates where we
    know them to be different from average rates. In many other cases,
    though, we did not estimate total cost functions or total costs
    based on marginal rates, mainly because we did not have the
    resources to do so.

[^7]: Strictly speaking, only the private running costs of motor-vehicle
    use \-- gasoline, oil, tires, and engine wear \-- are continuous,
    immediate, approximately linear functions of mileage.

[^8]: I emphasize "long run" because in some cases average cost exceeds
    marginal cost in the short run. In the short run, lagged costs and
    fixed costs are not foregone. Consider, for example, the effects on
    highway-patrol costs of a small reduction in motor-vehicle traffic.
    If the reduction in travel is very small, it is likely that nobody
    will notice. Even if public officials notice, they might not care.
    Even if they care, it will take them a while to act, through the
    budgetary and political process. And even when they act, they
    probably will not be able to recover immediately some sunk (but now
    under-used) capital and infrastructure (some capital can be sold off
    or converted to other uses immediately, but some can not). Thus,
    even though one might calculate an overall average cost of the
    highway patrol \$X/VMT/year, one cannot expect to save \$X if VMT is
    reduced by one mile in a year.

[^9]: To this list one perhaps might add a fourth: simply to know what
    the costs are now and were in the past. However, this is an
    additional purpose only if the knowledge is valued intrinsically,
    and not instrumentally. If the knowledge is valued instrumentally,
    then its use must be one of the three described above.

[^10]: It is doubtful that Boskin or any one else in the Bush
    Administration could have backed this obviously ideological belief
    with good analysis \-- mainly because the belief most likely is
    false.

[^11]: Originally I conceived of this project as "the social cost of
    motor-vehicle use in 1990-1991," rather than as "the annualized
    social cost of motor-vehicle use, based on 1990-1991 data". It turns
    out, however, that it is not straightforward to define what one
    means exactly by the "social cost of motor-vehicle use in
    1990-1991," and that the most logical definition of this is too
    unusual analytically to be useful. In Report \# 2, I discuss several
    frameworks for estimating the social cost of motor-vehicle use, and
    explain why I did not frame my analysis as "the social cost of
    motor-vehicle use in 1990-1991".

[^12]: We use a real (inflation-free) interest rate to amortize capital
    costs because we want to have the results in terms of 1990-1991
    prices. If we had used a nominal (with-inflation) interest rate to
    amortize capital, then we would have had to have inflated the
    periodic costs (operation and maintenance costs) to future levels,
    in accordance with the inflation expectations incorporated into a
    nominal interest rate. This is because the periodic costs and the
    amortized capital costs must be in the same terms: either 1990-91
    prices, or 1990-91 prices inflated. It is simpler to use a real
    interest rate, and keep the analysis in terms of 1990-91 prices,
    than to have to inflate current 1990-91 periodic prices in order to
    have the analysis in terms of inflated prices.

    There is a complication, however. Technically, if we use a real
    interest rate to amortize capital costs, then we should not estimate
    any 1990-91 costs on the basis of observed 1990-91 prices, because
    those prices included a nominal (rather than a real) interest
    component. Consider, for example, the price of gasoline. A part of
    the price of gasoline is the cost of refining; a part of the cost of
    refining is amortized capital cost; a part of amortized capital cost
    is interest cost, determined by the nominal interest rate; and a
    part of the nominal interest rate is the expected inflation rate.
    Thus, when we calculate the cost of gasoline on the basis of 1990-91
    prices, we incorporate a nominal-interest-rate component. Strictly
    speaking, this is inconsistent with the use of a real interest rate
    to amortize 1990-91 capital value. However, to estimate real 1990
    costs, on the basis of a real interest rate, we would have had to
    disentangle the interest component of every 1990 cost (such as
    gasoline), and then recalculate the cost using an inflation-free
    interest rate. We did not do this.

[^13]: One can estimate the net present value rather than the annualized
    cost of a project, but these are economically equivalent methods.

[^14]: Of course, one must be more specific about the base case than
    this, because the estimated costs and benefits will depend greatly
    on the details. A day-time parking-management plant that reduces VMT
    by 10% will result in costs and benefits quite different from those
    of, say, a congestion pricing scheme on a toll bridge that also
    reduces VMT by 10%.

[^15]: Of course, if there were a costless transportation system, people
    would make more and longer trips, and settlement would be more
    dispersed. Conceptually, I ignore this effect in the baseline
    "no-motor-vehicle" case.

[^16]: We hope that we have at least identified virtually all of the
    costs of motor-vehicle use.

[^17]: For a general review of cost-benefit analysis, see Mishan (1976).
    For a recent discussion of some of the more problematic aspects of
    cost-benefit analysis, including valuation of non-market goods,
    ecosystem complexity, the social rate of discount,
    irreversibilities, and efficiency versus equity, see Hanley (1992).

[^18]: Social-cost analysts sometimes are accused of ignoring or
    dismissing the benefits of motor-vehicle use (e.g., Green,
    1995;Science News , June, 1993) .

[^19]: Moreover, it is worth noting that in some places automobiles are
    more environmentally benign than the transportation modes (e.g.,
    horse-drawn carriages) that they have replaced (Button, 1993).

[^20]: I recognize, of course, that policy makers rarely if ever are
    concerned solely with maximizing economic efficiency or social net
    welfare, and often seem utterly unconcerned about it.
    Unquestionably, matters of distribution \-- who gets what, who wins
    and who loses \-- loom larger in the political arena. I leave out
    such distributional issues not because they are unimportant, but
    because efficiency is an interesting enough topic itself, and easily
    distinguished conceptually from equity.

[^21]: Although a market price on an item is sufficient to make a
    consumer account for the item in his decision making, in principle
    it is not necessary. What is necessary is that one way or another
    the consumer know and bear the cost. A cost can be "borne"
    abstractly, as, for example, a feeling of guilt. Thus, in principle,
    pollution could be satisfactorily accounted for in consumer
    decisions if everyone knew all the costs of pollution and cared
    enough to act as though they paid the costs in dollars.

[^22]: Indeed, thinking in terms of classes often will lead one to the
    wrong answer. For example, it might seem at first glance that
    because congestion costs are "internal" to \-- borne entirely by \--
    motor-vehicle users as a class, there is no imperative to do address
    them. However, when one person slows down another and does not
    account for the imposed delay, the resulting congestion, or delay,
    is an externality, and hence a source of economic inefficiency. In
    an analysis of efficiency, it does not matter that in this case
    motor-vehicle users as a class might bear all of the consequences;
    the point is that if there is a delay externality, then the
    motor-vehicle users themselves are using their motor vehicles
    inefficiently, and can improve their total welfare if each person
    has to account for his or her effect on the travel time of others.
    To maximize the net social benefits of motor-vehicle use we must
    eliminate all externalities, not just those that affect the class of
    "non users" (however defined).

[^23]: However, protective or ameliorative measures, such as ear plugs
    or asthma medicine, often are valued in markets. Ideally, one would
    distinguish these as monetary externalities. Moreover, the entire
    cost of crop loss due to motor-vehicle air pollution, which I have
    classified as a nonmonetary cost, actually is a market cost, and
    hence should be classified as a monetary externality. However, not
    only is it difficult in most cases to quantify the monetary-cost
    components of air-pollution and noise, it seems more natural to
    classify all of the costs of pollution in one place, as non-monetary
    externalities. And in any event, failure to distinguish all monetary
    costs does not undermine the classification with respect to economic
    efficiency, because from the perspective of efficient resource
    allocation and proper pricing there is little difference between a
    monetary externality and a non-monetary externality.

    Why then bother to distinguish monetary from non-monetary
    externalities at all? One reason, explained in the text, is that
    non-monetary externalities usually are harder to estimate and more
    uncertain. A second reason is that some public-sector infrastructure
    and service costs can be considered to be monetary externalities,
    and hence to straddle the public-sector and the monetary-externality
    categories. If we do not distinguish monetary from non-monetary
    externalities, then some of the public infrastructure and service
    costs, such as fire protection, will straddle the category that
    includes environmental externalities, such as global warming. This
    seems too much of a stretch; it is better to separate public-sector
    costs from environmental externalities by having an intermediate
    category called "monetary externalities".

[^24]: It also may be that monetary costs are more significant
    politically because they are more tangible economically.

[^25]: Of course, some monetary costs also are difficult to estimate and
    very uncertain. An example is the GNP loss due to a sudden change in
    the price of oil.

[^26]: Explicit prices, which mediate transactions between buyers and
    seller, obviously are not necessary if the "buyer" and "seller" are
    one and the same \-- that is, if there is no exchange, or no market,
    as in the case of personal nonmonetary costs. Thus, the absence of
    an explicit price is not relevant. (One might say that personal
    costs are implicitly or "internally" priced by travelers.)

[^27]: I recognize, though, that the distinction between personal
    nonmonetary costs and nonmonetary externalities is awkward to the
    extent that it is not realistic psychologically. In reality, if a
    motor-vehicle user accounts for, say, exposure to noise and the risk
    of an accident, she does not necessarily distinguish between the
    noise or risk that she is responsible for and the noise and risk
    imposed by others. Rather, she probably makes a qualitative judgment
    about overall exposure to noise and risk.

[^28]: Named after the English economist A. C. Pigou, who made
    significant contributions to the economic analysis of social
    welfare.

[^29]: In most cases, we do not have good data on producer surplus, and
    simply estimate it as a fraction of price-times-quantity revenues.
    Often, our estimate of this fraction is little more than our
    educated guess.

[^30]: However, a net (equilibrium) transfer from U.S. consumers to
    foreign producers is a real cost to the U.S.

[^31]: Recall that the point here is to estimate private-sector resource
    cost. The cost of the private-sector resources devoted to, say,
    making gasoline, does not include the federal and state gasoline
    tax, because that tax is a charge for the use of the roads, not part
    of the marginal-cost price of making gasoline. But why not then use
    the gasoline tax as an estimate of the cost of the roads, just as
    one uses price-times-quantity payments (less producer surplus) to
    estimate private-sector resource cost? There are two reasons. First,
    we have data on expenditures on road construction and maintenance
    anyway, and so do not need to use price-times-quantity to
    approximate cost.

    Second, even if we did want to use price-times-quantity to
    approximate the infrastructure cost, we would not treat the gasoline
    tax as a price, because it is not a marginal-cost price, but rather
    is a charge that bears no obvious resemblance to an efficient price.
    We can use price-times-quantity data to estimate cost (the area
    under the supply curve) only if we know the relationship between
    price and cost. Because we do not know the relationship between the
    gasoline tax and cost, gasoline tax data are useless information in
    an analysis of cost.

[^32]: This also results in an increased transfer of wealth from
    consumers to producers (who are receiving a price above their
    marginal cost), and can be a real loss to heavy oil importers like
    the U.S. Note, though, that this extra wealth transfer is not in
    addition to price-times-quantity payments; to the contrary it
    already is part of price-times quantity payments. Rather, the extra
    wealth transfer is with respect to the total transfer in a
    competitive market (see Greene and Leiby, 1993). The total resource
    cost of fuel use to the U.S., competitive market or not, is equal to
    price-times-quantity payments less domestic producer surplus, which
    is a non-cost transfer from U.S. consumers to U.S. producers.

[^33]: In light of this, one might distinguish those resources provided
    in \[occasionally\] non-competitive markets, and place them in a
    separate column labeled "subject to non-competitive pricing: MSV = p
    \_ MSC". For simplicity, I have not.

[^34]: I emphasize that the question here is not whether the resources
    used to meet government standards should be counted as a cost of
    motor-vehicle use \-- certainly they should be \-- but whether they
    are efficiently allocated. Catalytic converters are a cost of
    motor-vehicle use today, and barring unforeseen changes in
    regulations, will continue to be a cost of motor-vehicle use,
    regardless of whether or not there would be catalytic converters in
    a Pareto-optimal world. Furthermore, regardless of whether standards
    or taxes are used to address an externality, the relevant total cost
    is the resource cost of whatever control measures are used
    (including "defensive" behavior broadly construed) plus the
    estimated cost of the residual (uncontrolled) effects, such as
    emissions.

[^35]: The cost of parking in, say, a dirt field is just the foregone
    stream of rent from alternative uses of the land. In areas where
    such parking occurs, this generally will be small; certainly, it
    will be small compared to the land, capital, and operating costs of
    improved parking spaces.

[^36]: Of course, this statement does not apply to pure public goods,
    for which the optimal price is zero.

[^37]: Another point: for at least three reasons, it is likely that
    expenditure data do not represent purely economic cost (area under
    the supply curve). First, even if competitive bidding forces each
    contractor to offer no more than his minimum willingness to supply,
    the amounts that the highway contractors themselves pay for
    materials and services (and which they incorporate into their bids)
    may include producer surplus. Second, as Lee (1992) notes, "it is
    possible to argue that kickbacks from corrupt contractors and \[a
    portion of\] politically inflated labor rates are transfers, not
    costs" (p. 19; bracketed comments mine). Third, to the extent that
    highway expenditures are financed from incremental tax revenues, the
    economy suffers deadweight losses of consumer and surplus due to the
    contraction of consumption and production caused by price distortion
    by the incremental taxes.

[^38]: The Pigovian tax must be levied on the immediate damaging
    activity, and not on some related activity. In the case of air
    pollution, the tax should be levied on the source of the emissions.
    For example, the environmental damages from pollution from petroleum
    refineries should be internalized by a tax on refinery emissions,
    not by a tax on the final uses of the fuel products of the refinery.
    This remains true even if there is a clear economic and physical
    linkage between the final use of the refinery products and the
    emissions from the refinery. Now, if there is such a linkage, we may
    say that refinery pollution is a cost of motor-vehicle use \--
    because motor-fuel use does, through a chain of events, give rise to
    the environmental costs of the refinery \-- and one way or another,
    whether via the Pigovian tax or a separate calculation of marginal
    damages, we must count the refinery pollution as a cost of
    motor-vehicle use. However, linkage or no, we should levy the
    pollution tax at the refinery stacks.

[^39]: Suppose that we wish to estimate the social cost (private cost
    plus external cost) of using motor gasoline. We know that there is a
    relationship between the amount of motor fuel consumed and the
    amount that refineries produce, and a relationship between the
    amount of fuel that refineries produce and the amount of pollutants
    they emit. We therefore may count as a cost of using motor gasoline
    the value of the environmental damages from emissions from petroleum
    refineries making gasoline. In a world without true marginal-cost
    Pigovian taxes \-- i.e., in the real world of today and tomorrow \--
    we can make an independent estimate the value of the environmental
    damages from making motor gasoline, and add to it the refineries'
    actual private cost (exclusive of taxes) of making gasoline, as part
    of our estimate of the social cost of motor gasoline. This is what
    we do here. But what if the emissions from refineries actually were
    assessed a Pigovian charge equal to the marginal damage that they
    caused? In that case, the damage cost would be internalized at the
    refineries (which, as pointed out above, is where it should be
    internalized), and the refineries' private cost would include the
    cost of environmental damage. To add to this private cost an
    independent estimate of the environmental damages in this case would
    double-count the damages.

[^40]: Against this, however, Freeman (1997) notes that even if the
    emissions standards results in lower emissions than is consistent
    with economic efficiency, there still should be a tax on miles equal
    to the residual marginal damages.