This article first appeared in the newly released book from NERA Economic Consulting, 'The Line in the Sand: The Shifting Boundary Between Markets and Regulation in Network Industries'. With a foreword by Alfred E Kahn.
I. INTRODUCTION
This chapter shifts the emphasis away from the energy sector to consider application of economic techniques to another sector of the economy, albeit one that is a major user of energy, namely the transport sector. In particular, we consider how economists have advocated use of economic techniques to optimise use of transport capacity. Transport capacity is expensive to install and is generally fixed in the short run, so it is important that best use be made of capacity. Demand for use of capacity varies in time, peaking at certain times of the day, week, and/or year with low demand in periods in between. At peak, demand for travel or freight transport may exceed capacity, and so some rationing device is needed. In practice this rationing device
