Urban growth boundaries are, or at least were, a common feature in metropolitan strategies across Australia. They were justified on the basis of managing a range of adverse externalities associated with unstructured, low density, urban expansion. Theoretically, alternative policy mechanisms to the blunt instrument of growth boundaries could be applied to manage sprawl.
Market failure, in the sense of inadequate consideration of externalities, can be corrected by:
• Regulation (to require avoidance of, or compensation for, the externalities in question, as in the case of urban
growth boundaries); and/or
• The creation of a market to ‘internalise'the externalities (for example, emissions trading or congestion pricing);
and/or
• The application of taxes (to weight prices so that trading decisions giving rise to the externalities in question are
appropriately moderated, as would occur with carbon tax).
It is useful to consider whether user pays road pricing might generate the locational signals required to induce a
compact and efficient urban form along the lines envisaged by an urban growth boundary policy.
‘User pays' road pricing could have two components. Firstly, partial payment for the capital and operating costs
for extension or enhancement of the road network. Secondly, payment for congestion externalities.
Both elements are technically achievable in Australian cities. However, only some of the externalities associated with sprawl, or the foregone benefits of more compact metropolitan structures, are amenable to inclusion in usage prices.
These are travel time savings, vehicle operating cost savings and reductions in harmful environmental emissions and other vehicle related externalities. Road usage is not necessarily a good proxy for several other externalities or foregone benefits, including;
• Infrastructure cost savings, including enhanced certainty in planning parameters for both publicly and privately
provided facilities and services;
• Natural resource, landscape and biodiversity conservation;
• Improved health outcomes due to walking and cycling holding a greater mode share;
• Superior household choice in accessing services and housing;
• Retained agricultural production and superior food security;
• Enhanced productivity in the metropolitan regional economy due to superior agglomeration economies
and human capital development; and
• Improved capacity for adaptation in the urban structure pending future environmental shocks or challenges.
If road charges and congestion pricing were to be ‘loaded up' to reflect these additional externalities, there would be a potential distortion of the travel market, with business and household interaction in the metropolis dampened to an inefficient extent. So, while road pricing is a warranted efficiency measure in its own right, a first principles analysis would suggest it cannot be relied upon to deliver all the benefits of a more compact pattern of metropolitan development.
Micro-simulated evidence gathered from Germany and the United States indicates that introduction of road pricing mechanisms (congestion pricing and toll rings) has only a marginal impact on location choices of households and workplaces. However, it leads to altered travel patterns with households and employers tending to either choose to travel at off-peak hours or switch their mode of transport.
Eliasson and Mattsson (2001) suggest that the location impacts of road pricing are dependent on congestion levels in the initial situation, the relative accessibility of households to work and the urban form of the city. If congestion levels are high in the initial situation, and travel costs are increased (through road pricing or any such measure), more central locations will become more attractive. This is because better accessibility is provided at such locations in a mono-centric city. However, if congestion is low or starts to decrease, the relative advantage of accessibility in central vis-a-vis dispersed location dissipates, thereby leading to a more dispersed pattern of settlement.
Eliasson and Mattsson use a model featuring a generic symmetrical city (but not necessarily a monocentric city) to simulate the effects of congestion pricing and toll rings on the location choices of households, workplaces and commercial operators. With an increase in congestion pricing, they find a very modest movement of households and workplaces (only between 2% and 4% of existing households and workplaces) from the outermost suburbs or fringe towards more concentrated locations. There is barely a noticeable pattern of movement of households and workplaces from middle-ring zones into more concentrated locations.
The effects on the location choices of commercial operators, in contrast, were found to be relatively more pronounced. This is because shops and service locations value the expected number of customers (which is dependent on the travel patterns of consumers, which in turn, are affected comparatively more by congestion pricing), whilst households and workplaces tend to place a high value on relative accessibility, which is less sensitive to congestion pricing.
Another interesting finding from Eliasson and Mattsson's 2001 study is that as tolls or road pricing are implemented, a tendency towards centralisation is noticeable. However, this tendency dissipates as road pricing increases, because the implicit price of living and working in a suburbanised environment diminishes. Consequently, these decision-makers tend to move to more dispersed locations as the toll charge increases.
These findings are corroborated in Wegener (1996) (as cited in Eliasson and Mattsson (2001)), who simulated
a model for Dortmund, Germany, to test the effects of road pricing on location choices of households. The study concluded:
"There is ample room for changing travel patterns to compensate for changing costs
without necessarily changing the location of activities".
Further evidence gathered using theoretical simulations of efficiency impacts suggests that in the event where marginal cost pricing cannot be successfully implemented for whatever reason (i.e. congestion road pricing cannot be used successfully to internalise all road related externalities), imposing an urban growth boundary instead would lead to welfare improvements while infrastructure can continue to be priced at average costs (Ding, Knapp and Hopkins (1999).
Regardless of the effectiveness of congestion pricing in reshaping settlement patterns, it cannot stand alone this regard. As noted, parallel pricing strategies would be required to reflect several other externalities associated with sprawl. It is not clear what form these would take, or how the prices in question would be calculated.
Given such complexities, there is a point at which regulation, for example urban growth boundaries, will be a superior (more efficient) method of dealing with externalities than market based strategies.
References 
Eliasson J., Mattsson L.G (2001).Transport and location effects of road pricing: a simulation approach. Journal
of Transport Economics and Policy. Vol 35, Part 3, September.
Ding, Chengri & Knaap, Gerrit J. & Hopkins, Lewis D., 1999. "Managing Urban Growth with Urban Growth
Boundaries: A Theoretical Analysis", Journal of Urban Economics, Elsevier, vol. 46(1), pages 53-68, July.
Urbecon Volume 1 2012
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