Abstract:We start with the presumption that it is most useful, and most typical, to estimate social cost over some unit of time — most typically, a year. Given this, there are at least three different frameworks one can estimate the social cost (either the average cost or the marginal cost): 1) as the costs that would not have been incurred in a given year had investment in and use of motor-vehicles and highways ceased at the beginning of the year; 2) as the costs that would not have been incurred in a given year had investment in and use of motor-vehicles and highways ceased many years before the given year; 3) as the yearly (annualized) costs that would not be incurred in the future as a result of ceasing to invest in and use motor-vehicles and highways.

In a sense, the question of the appropriate analytical framework really is a question of the appropriate way to handle interest payments. Interest payments are important because a large portion of the total social cost of motor-vehicle use is spent on relatively long-lived equipment and infrastructure: motor-vehicles, garages, parking facilities, highways, and buildings that house administrators, police, regulators, and so on.