Does high speed rail compete fairly with other transportation modes? Madrid-Barcelona case study

Transportation modes produce many external costs such as congestion, accidents, and environmental impacts (pollution, noise and so on). From the microeconomic theory it is well known that in order to maximize social welfare, transportation modes should internalize the marginal costs they produce. Allocative efficiency is achieved when all transportation modes are priced at their social marginal cost. The objective of this research is to evaluate to what extent different passenger transport modes internalize their social marginal costs. This analysis is important since it affects the competitiveness of the different transport modes for a given OD pair. The case study analyzed is the corridor Madrid-Barcelona in Spain and the different transport modes have been considered (cars, buses, high-speed train and air). The research calculates the marginal social cost per user for each transportation mode, and it compares it with the average fare—allowing for the effect of discriminatory taxes—currently paid by the users. The external costs are calculated according to the guidelines established by the European Union. The gap between the marginal social cost and the price paid by users will provide the extra cost per passenger that each transport mode should have to pay for internalizing the external cost it produces. The research shows that external costs already produced by road and air transport modes are much higher than those produced by rail. However, the results show that road transport already internalizes every external costs it produces because users pay high fuel taxes. In other words, although rail transportation produces lower external costs, road transportation pays more than it should on the basis of the social marginal costs. The results of this work might be of help for Europ ean policy actions to be undertaken in the future.