Chapter 2 Transport user charges and cost recovery

According to the celebrated cost recovery theorem, the degree of cost recovery from optimal user charges depends on the extent of scale economies in user costs, infrastructure construction costs and operating costs. This chapter presents the theorem, and reviews various generalisations of it. It then summarises empirical evidence by transport mode on the degree of scale economies or diseconomies in usage and in infrastructure, and the predicted surpluses or deficits with efficient pricing and investment. It also discusses some of the practical challenges in translating the cost recovery theorem into policy.