Many of the costs associated with motor vehicle use, for instance, are external. Examples include the costs of congestion, and noise, water and air pollution. If users had to pay the full cost of road transport, including external costs, they might choose different forms of transport or decide to travel less. Economic assessments of policy options must consider all costs and benefits of a proposal, including ‘external’ effects, such as air emissions. Failure to do so could mean that costs or benefits are significantly underestimated and the analysis is biased. Given the need to identify and measure the.
