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Capacity cost structure, welfare and cost recovery: Are transport infrastructures with high fixed costs a handicap?

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  • De Borger, Bruno
  • Dunkerley, Fay
  • Proost, Stef

Abstract

In this paper, we consider a region that invests in infrastructure used by both local demand and through traffic. We then compare transport systems that have, for a given capacity, the same total infrastructure cost but vary in the proportion of fixed costs and variable capacity costs. We show that, compared to a benchmark infrastructure which has zero fixed costs, an infrastructure which has (ceteris paribus) a higher share of fixed costs leads to higher welfare for the regional government building it. Moreover, we find that, even for capacity characterized by very high shares of fixed costs, financing of infrastructure is generally not an important issue as long as regions are allowed to toll through traffic. Finally, we show that, compared to the benchmark technology without fixed costs, regions are more likely to make a particular transport investment if they can chose a technology with higher fixed costs. As a corollary, projects with a higher share of fixed costs do not necessarily require higher federal subsidies.

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Bibliographic Info

Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 43 (2009)
Issue (Month): 5 (June)
Pages: 506-521

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Handle: RePEc:eee:transb:v:43:y:2009:i:5:p:506-521

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Keywords: Capacity cost structure Cost recovery Transport investment;

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References

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  1. Richard Arnott & Marvin Kraus, 1995. "Self-Financing of Congestible Facilities in a Growing Economy," Boston College Working Papers in Economics 304., Boston College Department of Economics.
  2. DE BORGER, Bruno & PROOST, Stef & VAN DENDER, K., . "Congestion and tax competition in a parallel network," Working Papers 2004003, University of Antwerp, Faculty of Applied Economics.
  3. David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Working Papers 200102, University of Minnesota: Nexus Research Group.
  4. De Borger, B. & Dunkerley, F. & Proost, S., 2007. "Strategic investment and pricing decisions in a congested transport corridor," Journal of Urban Economics, Elsevier, vol. 62(2), pages 294-316, September.
  5. Richard J. Arnott & Ronald E. Grieson, 1978. "Optimal Fiscal Policy for State and Local Government," Working Papers 291, Queen's University, Department of Economics.
  6. de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
  7. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-79, March.
  8. Zhang, Anming & Zhang, Yimin, 2003. "Airport charges and capacity expansion: effects of concessions and privatization," Journal of Urban Economics, Elsevier, vol. 53(1), pages 54-75, January.
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Cited by:
  1. Proost, Stef & Dunkerley, Fay & Borger, Bruno De & Gühneman, Astrid & Koskenoja, Pia & Mackie, Peter & Loo, Saskia Van der, 2011. "When are subsidies to trans-European network projects justified?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 161-170, March.

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