ABSTRACT
This chapter explores a transport demand management (TDM) measure which could deal with congestion and pollution caused by automobile traffic, as they are major and recurring concerns in urban agglomerations all over the world. The economic theory behind pollution permit markets can be traced back to the work of Coase on external costs, followed by that of Dales on regulating water use, and the formalization of pollution permit markets by Montgomery. Since the seminal work of Marshall and then Pigou, it has been established in standard economic theory that regulation by pricing is an efficient means of allocating a scarce resource. Barriers to the implementation of TDR are mostly the same as for conventional urban road pricing as the purpose of both instruments is to regulate transport externalities and hence travel intensity. The issue of legal feasibility of regulating urban car travel with TDR is broadly analogous to the one for area or cordon road pricing.
