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Properties of Pareto-efficient contracts and regulations for road franchising

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  • Tan, Zhijia
  • Yang, Hai
  • Guo, Xiaolei
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Abstract

Private provision of public roads through build-operate-transfer (BOT) contracts is increasing around the world. This paper investigates the properties of Pareto-efficient BOT contracts using a bi-objective programming approach under perfect information. Under certain conventional assumptions, we find that for any Pareto-efficient BOT contract: (1) the concession period should be set to be the whole road life; (2) the volume-capacity ratio (or the road service quality) and the average social cost per trip are constantly equal to those at the social optimum whenever there are constant returns to scale in road construction. Extensions are made to the cases with increasing (decreasing) returns to scale in road construction. A variety of regulatory regimes are investigated to analyze the behavior of the profit-maximizing private firm, and efficient regulations, including demand and markup charge regulations, are elucidated for both the public and private sectors to achieve a predetermined Pareto-optimal outcome.

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Bibliographic Info

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

Volume (Year): 44 (2010)
Issue (Month): 4 (May)
Pages: 415-433

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Handle: RePEc:eee:transb:v:44:y:2010:i:4:p:415-433

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Keywords: Private road Road franchising Pareto-efficiency Regulation;

References

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  10. Nombela, Gustavo & de Rus, Ginés, 2004. "Flexible-term contracts for road franchising," Transportation Research Part A: Policy and Practice, Elsevier, vol. 38(3), pages 163-179, March.
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  12. Kenneth E. Train, 1991. "Optimal Regulation: The Economic Theory of Natural Monopoly," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200848, December.
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Citations

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Cited by:
  1. Yang, Hai & Yang, Teng, 2011. "Equilibrium properties of taxi markets with search frictions," Transportation Research Part B: Methodological, Elsevier, vol. 45(4), pages 696-713, May.
  2. Tan, Zhijia & Yang, Hai, 2012. "The impact of user heterogeneity on road franchising," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 958-975.
  3. Vincent Van Den Berg, 2011. "The effect of private road supply on the volume/capacity ratio when firms compete Stackelberg in Road Capacity," ERSA conference papers ersa11p1203, European Regional Science Association.
  4. van den Berg, Vincent A.C., 2012. "Auctions for private congestible infrastructures," MPRA Paper 40103, University Library of Munich, Germany.
  5. Vincent A.C. van den Berg, 2012. "Auctions for Private Congestible Infrastructures," Tinbergen Institute Discussion Papers 12-087/VIII, Tinbergen Institute, revised 19 Oct 2012.
  6. Hongyan Chen & Ruwen Qin, 2012. "Real options as an incentive scheme for managing revenues in transportation infrastructure projects," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 6(1/2), pages 77-101.
  7. Vincent A.C. van den Berg & Erik T. Verhoef, 2011. "Is the Service Quality of Private Roads too Low, too High, or just Right when Firms compete Stackelberg in Capacity?," Tinbergen Institute Discussion Papers 11-079/3, Tinbergen Institute, revised 02 Aug 2012.
  8. Wu, Di & Yin, Yafeng & Lawphongpanich, Siriphong, 2011. "Optimal selection of build–operate-transfer projects on transportation networks," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1699-1709.
  9. van den Berg, Vincent A.C., 2013. "Serial private infrastructures," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 186-202.
  10. Wu, Di & Yin, Yafeng & Yang, Hai, 2011. "The independence of volume-capacity ratio of private toll roads in general networks," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 96-101, January.
  11. Liu, Tian-Liang & Chen, Jian & Huang, Hai-Jun, 2011. "Existence and efficiency of oligopoly equilibrium under toll and capacity competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 908-919.
  12. Tan, Zhijia & Yang, Hai, 2012. "Flexible build-operate-transfer contracts for road franchising under demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1419-1439.
  13. Tan, Zhijia, 2012. "Capacity and toll choice of an add-on toll road under various ownership regimes," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(6), pages 1080-1092.
  14. Niu, Baozhuang & Zhang, Jie, 2013. "Price, capacity and concession period decisions of Pareto-efficient BOT contracts with demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 53(C), pages 1-14.

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