Social marginal cost pricing and second best alternatives in partnerships for transport infrastructures

According to the economic theory, if all the first-best conditions are met, social optimality involves the prices to be set equal to social marginal costs. When it is not possible to set prices equal to social marginal costs, due to the presence of constraints within the transport sector or distortions elsewhere in the economy, the theory suggests corrections to the SMC principle (second-best alternatives). But the implementation of second best alternatives can give rise to serious problems when transferred from theory to practice. This chapter will discuss in particular the problems that might rise when investment cost are included (totally or partially) in the social marginal costs rules, and in particular when private operators are involved.