Un-Vignetting vignettes

Abstract

In the art of photography, the phenomenon of vignetting means blurring of an image at its periphery compared to its centre. Vignettes are a form of road pricing independent of travel distance. Their usage in Croatia was recently rejected while in Europe, the number of countries using them, is increasing. The economic question of using vignettes as a primary source of revenue for the financing of Croatian highways was blurred by economically peripheral but politically sensitive welfare transfer issues. There has been no visible attempt to push the discussion back into the field of economics by using purely economic criteria such as: opportunity cost of usage, “sunk costs”, marginal costs, and total costs recovery. The paper aims at un-vignetting (un-blurring) the issue and re-focusing it towards economic arguments. The approach taken is a deductive-nomological argument based on opportunity costs of usage. The conclusion is straightforward: the vignettes are Pareto efficient since they make the society in general and the consumers in particular ultimately better off even after taking into account compensations. The opportunity costs of usage of congestion-free roads are zero. The optimal quantity-dependent price is then also zero. Since zero price does not recover costs, a differential pricing scheme needs to be put in place: one that does not depend on distance travelled.