Singapore has a total of 3324 km of roadways which is modern and well maintained. The total length of the expressways would be more than 150 km. 12 per cent of Singapore’s land area is covered by roads and between 1999 and the end of 2007, the traffic congestion in Singapore increased by 25 per cent. In 2008, the Government proposed a major investment in land transport, including a new S$8 billion expressway.
Road ways in Singapore is monitored by the Government. To avoid congestion, Singapore has priced vehicle entry into its central business district since 1975.The pricing module has been revised from time to time. For roads, bridges and highways tolls are collected, which are then used for developing the transport infrastructure.
The Economics of Road Pricing
According to basic principles of economics, any excess demand for a good or service can be removed if its price is increased sufficiently. This economic principle applies for roadway as well in Singapore. Chronic bottlenecks in road traffic indicate, there is excess demand for road usage, but in most cases pricing is not undertaken rationally.
Road usage or the volume of traffic differs from place to place. Traffic patterns also change over the years. Road pricing can be used to control traffic. The pricing of the roads, are a direct testimonial to the relationship between supply and demand. For e.g. in response to higher prices, some road users would carpool, revise the timing of travel or use an alternative form of transportation.
Excess Demand for Roadway Use
Any decision pertaining to additional road construction can be taken after monitoring the amount of revenue collected from existing road usage. The cost of road usage would comprise of construction, maintenance and congestion costs.
Cover the High Fixed Costs of Constructing Roadways
The standard ways by which businesses can effectively price activities involving high fixed costs, but relatively low marginal costs, include price discrimination and the use of set-up charges to supplement the basic charge for actually using the good or service. If there is both a set-up charge and a user charge, economists speak of “two-part” pricing.
Price discrimination involves charging some users more than others for the same good or service. The surplus revenue collected from some customers can be used to help cover fixed costs. As long as the price paid by marginal users corresponds to the marginal cost, this pricing can be efficient.
Regarding roadways, Singapore practices both price discrimination and two part pricing. Pricing depends on the type of vehicle. It varies from one vehicle type to another. Set-up charges in this context involve the collection of annual road taxes—and related fees for vehicle ownership—in addition to user charges. The road tax that a vehicle owner pays is independent of the amount of driving done. It depends instead primarily on the engine size of the owner’s vehicle.
