Abstract
A tax on fuel is one of the primary mechanisms for reducing truck transport externalities such as greenhouse gas emissions, road damage, congestion, and accidents. The economic efficiency properties of a fuel tax are examined for the farm-to-elevator grain trucking sector--a sector for which the road damage externality is often severe. Because trucking volumes cumulate more rapidly near the delivery points, marginal external cost is generally not proportional to distance. Further, noncompetitive FOB pricing by grain buyers implies that road tax discounts to offset price markups should be independent of location. In both cases, a fuel tax is not capable of efficiently addressing the externality. With discriminatory pricing by buyers, "cross-hauling" emerges and the optimal fuel tax is unexpectedly high because the buyer passes on only a portion of the tax to the farmer. In a simple example with discriminatory pricing, the optimal fuel tax reduces excess average trucking distance by less that 50%.
