Road Supply in Central London: Addition of an Ignored Social Cost

Abstract

Studies examining the social cost of driving usually ignore the opportunity cost of having roads in place: the associated land rents. Especially for geographic regions where land is valuable, including the rent costs may even lead governments to close some roads. By using the London congestion charging zone case, a more general long-run social cost curve is calculated with the addition of the rents. Based on the optimal road usage concept, this study found that including the rents in the cost/ benefit analysis significantly affects the results and can increase the social cost by up to 200% and decrease the optimal road usage by 40%.