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Private Toll Roads: A Dynamic Equilibrium Analysis

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Author Info
Robin Lindsey (University of Alberta)
André de Palma (Université de Cergy Pontoise)

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Abstract

In recent years there has been a surge of interest in private toll roads as an alternative to public free- access road infrastructure. Private toll roads have gained favour for a variety of reasons, including their potential to alleviate traffic congestion, shrinking public funds for road construction and maintenance, and growing acceptance of the user-pay principle.

This paper takes the profitability of private toll roads as given, and focuses on their allocative efficiency. The model features one origin and one destination linked by two parallel routes that can differ in capacity and free-flow travel time. Congestion takes the form of queueing. Individuals decide whether to drive, and if so on which route and at what time. Three private ownership regimes are considered: a private road on one route and free access on the other route, competing private roads, and a mixed duopoly with a private road competing with a public toll road. The efficiency gain (measured by social surplus) in each regime is measured relative to the efficiency gain derived from applying first- best optimal tolls on both routes.

Private toll roads are generally found to enhance efficiency. The efficiency gain is greater when tolls are varied over time to eliminate queueing, when competing routes are also tolled, when no private road has a dominant fraction of total capacity, and when a private road does not suffer a significant travel time disadvantage. Paradoxically, a mixed duopoly can be less efficient than a private duopoly. Price leadership by a public toll road operator avoids this possibility, although leadership typically yields little efficiency gain.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 97-057/3.

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Date of creation: 06 Jun 1997
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Handle: RePEc:dgr:uvatin:19970057

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: private toll roads bottleneck congestion departure time second-best pricing

References listed on IDEAS
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  1. Tabuchi Takatoshi, 1993. "Bottleneck Congestion and Modal Split," Journal of Urban Economics, Elsevier, vol. 34(3), pages 414-431, November. [Downloadable!] (restricted)
  2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  3. R. Arnott & A. de Palma & R. Lindsey, 1986. "Departure Time and Route Choice," Working Papers 658, Queen's University, Department of Economics.
  4. Shmanske, Stephen, 1996. " Contestability, Queues, and Governmental Entry Deterrence," Public Choice, Springer, vol. 86(1-2), pages 1-15, January.
  5. 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. [Downloadable!] (restricted)
  6. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1990. "Economics of a bottleneck," Journal of Urban Economics, Elsevier, vol. 27(1), pages 111-130, January. [Downloadable!] (restricted)
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  7. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May. [Downloadable!] (restricted)
  8. De Vany, Arthur & Saving, Thomas R, 1980. "Competition and Highway Pricing for Stochastic Traffic," Journal of Business, University of Chicago Press, vol. 53(1), pages 45-60, January. [Downloadable!] (restricted)
  9. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-79, June. [Downloadable!] (restricted)
  10. Viton Philip A., 1995. "Private Roads," Journal of Urban Economics, Elsevier, vol. 37(3), pages 260-289, May. [Downloadable!] (restricted)
  11. Richard Arnott, 1989. "Does Providing Information to Drivers Reduce Traffic Congestion?," Discussion Papers 864, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  12. Nijkamp, Peter & Rienstra, Sytze A, 1995. "Private Sector Involvement in Financing and Operating Transport Infrastructure," The Annals of Regional Science, Springer, vol. 29(2), pages 221-35, May.
  13. Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November. [Downloadable!] (restricted)
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