Estimation of Marginal Social Cost: The Case for Namibian Roads

1. ESTIMATION OF MARGINAL SOCIAL COST, ISSUES AND SUGGESTIONS: The case for Namibian roads Presenter: Helvi Petrus Promoter: Stephan Krygsman

2. Outline Introduction Literature Data Results Conclusion

3. Introduction 2.3 million population 826 000 square metre 48 000 km 370 000 vehicle population Currency 1N$=1ZAR

4. National Road Network

5. Economic theory-Marginal Social Costs • Although road users are faced with both private and external costs, • this paper places its focus on estimating the marginal external costs that road users rare take into account.

6. Components of Marginal External Costs Marginal External costs Marginal Congestion Costs Marginal Infrastructure Costs Marginal Environmental Costs Marginal Accident Costs

7. Literature • It is quite complex to measure and implement the SRMC (Rothengatter, 2003). • First-best road pricing would improve the road sector funding and financing status quo (Verhoef, 1996). • Roads in Africa do not experience widespread and persistent road congestion • Setting prices equal to SRMC will result in large financing deficit (Heggie, 1995) • Low demand and excess capacity, SRMC is likely not to cover the fixed costs (Kahn, 1988). • Depending on demand, RUC at SRMC could lead to deficits or surplus (Proost and van Dender, 2003). • Estimation of the optimal user charges and see whether it yield into a deficit or surplus should serves as a departure point (Walter, 1968).

8. Motivation “ if road investment and maintenance planning is assumed to be relevant, and if road pricing should comprises of marginal costs in order to influence present and future road use, then why not use planning models (PMSs) such as HDM4 to determine marginal costs?” (Bruzelius, 2004). Research Focus

9. Objectives • To explore the estimation of the marginal externality costs for road use. • To identify the financial implication of implementing road user charge set at SRMC .

10. Data HDM-4 Workspace Source: Henry and Kerali, 2000

11. Study area

12. Steps followed for the case study (HDM-4 analysis) District Paved road- 61.05km AADT 224 (69 4x4, 20 articulated trucks, 1 bus, 12 heavy trucks, 105 medium cars, and 17 mini buses). Overlay when roughness exceeds 5.23, partial resurfacing if more than 10.61% of the road area suffer all structural cracking, or partial overlay if rutting exceeds 13mm.

13. Calculations

14. Results: Average costs pricing

15. Results: Marginal Costs Pricing

16. Results: Costs vs Revenue Average Costs Pricing Marginal Costs Pricing

17. Results Marginal and Average Costs–District road(Cents/km) SRMC on National road network

18. Conclusion • The paper demystified the marginal externality estimation for road use in Namibia. • It is possible to use the HDM-4 to estimate the marginal cost of road use depending on the quality of available data and the specification and calibration are accurate. • The disparities between heavy vehicles and light vehicles is very wide. • RUCs charged at SRMC would have a high chance of resulting in deficit……(Heggies, 1995) • Environmental costs presented a good chance to be also incorporated into fuel levy and not only accident costs………(Link et al., 2016 as well as Parry et al., 2007. • There is a need for second-best optimal pricing approach for the Namibian roads

19. Contribution • The use of HDM-4 to estimate marginal social cost. • Contribution to the MSC literature- Developing Countries (SSA). • Estimate of MSC on expansive roads-sparsely vehicle population-act as a base for the entire network. • A base to improve the user charges from an efficiency perspective. • Results could guide planner and policymakers.

21. Thank you! • Email: 21438293@sun.ac.za