Prices, quantities and standards in congestion pricing – The case of Singapore’s electronic road pricing

This paper introduces a marginal abatement cost and marginal external cost (MAC-MEC) framework, adapted from the environmental economics tradition of Baumol and Oates, to urban road congestion pricing. While marginal social cost analysis has long underpinned congestion theory, the MAC-MEC formulation offers a novel complementary perspective that centres the driver’s diversion cost as a welfare-relevant quantity and clarifies how an observable speed standard implements the theoretical optimum under asymmetric information, without requiring direct estimation of either cost curve. Singapore’s Electronic Road Pricing (ERP) system serves as the empirical anchor. The paper situates ERP within Singapore’s broader instrument architecture and demonstrates, drawing on Tinbergen’s instrument-target principle, that each instrument addresses a structurally distinct market failure. The MAC-MEC framework is applied to characterise the welfare-maximising traffic volume and evaluate Singapore’s speed-floor implementation as an instance of the Baumol-Oates standards-and-prices approach. The paper concludes with a critical assessment of the transition to ERP 2.0.