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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)

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 theirpotential 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 allocativeefficiency. The model features one origin and one destination linked by two parallel routes that candiffer in capacity and free-flow travel time. Congestion takes the form of queueing. Individuals decidewhether to drive, and if so on which route and at what time. Three private ownership regimes areconsidered: a private road on one route and free access on the other route, competing private roads, anda mixed duopoly with a private road competing with a public toll road. The efficiency gain (measuredby 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 tollsare varied over time to eliminate queueing, when competing routes are also tolled, when no private roadhas a dominant fraction of total capacity, and when a private road does not suffer a significant traveltime disadvantage. Paradoxically, a mixed duopoly can be less efficient than a private duopoly. Priceleadership by a public toll road operator avoids this possibility, although leadership typically yieldslittle efficiency gain.

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Bibliographic Info

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
Date of revision:
Handle: RePEc:dgr:uvatin:19970057

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

Related research

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

References

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  1. 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.
  2. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  3. Viton Philip A., 1995. "Private Roads," Journal of Urban Economics, Elsevier, vol. 37(3), pages 260-289, May.
  4. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1990. "Economics of a bottleneck," Journal of Urban Economics, Elsevier, vol. 27(1), pages 111-130, January.
  5. Shmanske, Stephen, 1996. " Contestability, Queues, and Governmental Entry Deterrence," Public Choice, Springer, vol. 86(1-2), pages 1-15, January.
  6. Laih, Chen-Hsiu, 1994. "Queueing at a bottleneck with single- and multi-step tolls," Transportation Research Part A: Policy and Practice, Elsevier, vol. 28(3), pages 197-208, May.
  7. R. Arnott & A. de Palma & R. Lindsey, 1986. "Departure Time and Route Choice," Working Papers 658, Queen's University, Department of Economics.
  8. 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.
  9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May.
  10. Small, Kenneth A. & Gomez-Ibanez, Jose A., 1999. "Urban transportation," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 46, pages 1937-1999 Elsevier.
  11. De Vany, Arthur & Saving, Thomas R, 1980. "Competition and Highway Pricing for Stochastic Traffic," The Journal of Business, University of Chicago Press, vol. 53(1), pages 45-60, January.
  12. Tabuchi Takatoshi, 1993. "Bottleneck Congestion and Modal Split," Journal of Urban Economics, Elsevier, vol. 34(3), pages 414-431, November.
  13. 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.
  14. 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.
  15. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-79, June.
  16. 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.
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Citations

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Cited by:
  1. De Borger Bruno & Dunkerley Fay & Proost Stef, 2006. "The interaction between tolls and capacity investment in serial and parallel transport networks," Energy, Transport and Environment Working Papers Series ete0607, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  2. DE BORGER, Bruno & PROOST, Stef, . "Vertical and horizontal tax competition in the transport sector," Working Papers 2004022, University of Antwerp, Faculty of Applied Economics.
  3. De Borger, B. & Proost, S. & Van Dender, K., 2005. "Congestion and tax competition in a parallel network," European Economic Review, Elsevier, vol. 49(8), pages 2013-2040, November.
  4. Grahn-Voorneveld, Sofia, 2011. "Sharing profit in parallel and serial transport networks," Working papers in Transport Economics 2011:7, CTS - Centre for Transport Studies Stockholm (KTH and VTI).

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