Designing efficient pricing models to mitigate transport-related externalities in intercity corridors

Abstract

This paper evaluates pricing policies to reduce transport-related external costs in an intercity corridor (Aveiro-Coimbra, Portugal). We build a numerical platform that updates multimodal demand via arc-elasticities and re-estimates external costs with flow-dependent linear functions calibrated for the corridor. Results show that a combined package, fare free rail plus + 5% fuel tax (increasing from 40% to 45%), delivers the strongest overall outcome, cutting external costs by 7.1% while raising state revenue by 2.1%. We primarily assess changes in social welfare driven by reductions in transport-related external costs and additionally report the associated changes in state revenue as a complementary fiscal metric. We also discuss distributional impacts, as equity concerns are central to the political acceptability of pricing reforms: uniform fuel-tax increases may be regressive where public transport alternatives are weak, motivating an “invest first, then price” sequencing. The methodology is transferable to similar corridors and supports evidence-based pricing design.