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Can privatization of U.S. highways improve motorists' welfare?

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  • Winston, Clifford
  • Yan, Jia

Abstract

We assess the welfare effects of highway privatization accounting for government's behavior in setting the sale price, firms' strategic behavior in setting tolls, and motorists' heterogeneous preferences for speedy and reliable travel. We find motorists are able to benefit from privatization by negotiating tolls with private providers that increase their consumer surplus. Surprisingly, we find that by obtaining tolls and service that align with their varying preferences, motorists may be better off negotiating with a monopolist than with duopoly providers or under public–private competition. Toll regulation may be counterproductive because it is likely to treat motorists as homogeneous.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7 ()
Pages: 993-1005

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:993-1005

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Highway privatization; Preference heterogeneity; Mixed logit;

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References

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  1. Paul Calcott & Shuntian Yao, 2005. "Competition between highway operators: can we expect toll differentiation?," Economic Growth centre Working Paper Series 0504, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  2. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
  3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  4. Verhoef, Erik T., 2002. "Second-best congestion pricing in general static transportation networks with elastic demands," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 281-310, May.
  5. Eduardo M.R.A. Engel & Ronald D. Fischer & Alexander Galetovic, 1998. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," NBER Working Papers 6689, National Bureau of Economic Research, Inc.
  6. Clifford Winston, 1998. "U.S. Industry Adjustment to Economic Deregulation," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 89-110, Summer.
  7. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Privatizing Highways in the United States," Review of Industrial Organization, Springer, vol. 29(1), pages 27-53, September.
  8. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
  9. AndrÊ de Palma & Robin Lindsey, 2000. "Private toll roads: Competition under various ownership regimes," The Annals of Regional Science, Springer, vol. 34(1), pages 13-35.
  10. Edelson, Noel M, 1971. "Congestion Tolls Under Monopoly," American Economic Review, American Economic Association, vol. 61(5), pages 873-82, December.
  11. Nicholas E. Burger & Daniel T. Kaffine, 2009. "Gas Prices, Traffic, and Freeway Speeds in Los Angeles," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 652-657, August.
  12. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Differentiated Road Pricing, Express Lanes and Carpools: Exploiting Heterogeneous Preferences in Policy Design," Working Papers 050616, University of California-Irvine, Department of Economics, revised Mar 2006.
  13. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  14. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
  15. de Palma, Andre & Lindsey, Robin, 2002. "Private roads, competition, and incentives to adopt time-based congestion tolling," Journal of Urban Economics, Elsevier, vol. 52(2), pages 217-241, September.
  16. Choi, Ki-Hong & Moon, Choon-Geol, 1997. "Generalized extreme value model and additively separable generator function," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 129-140.
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Cited by:
  1. Paul Koster & Hans Koster, 2013. "Commuters' Preferences for Fast and Reliable Travel," Tinbergen Institute Discussion Papers 13-075/VIII, Tinbergen Institute, revised 24 Jun 2013.
  2. Paul Koster & Hans Koster, 2013. "Analysing Heterogeneity in the Value of Travel Time and Reliability: A Semiparametric Estimation Approach," ERSA conference papers ersa13p1032, European Regional Science Association.
  3. van den Berg, Vincent A.C. & Verhoef, Erik T., 2012. "Is the travel time of private roads too short, too long, or just right?," Transportation Research Part B: Methodological, Elsevier, vol. 46(8), pages 971-983.
  4. van den Berg, Vincent A.C., 2013. "Serial private infrastructures," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 186-202.
  5. repec:dgr:uvatin:2013075 is not listed on IDEAS

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