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Private Provision of Highways: Economic Issues

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  • Kenneth A. Small

    ()
    (Department of Economics, University of California-Irvine)

Abstract

This paper reviews issues raised by the use of private firms to finance, build, and/or operate highways — issues including cost of capital, level and structure of tolls, and adaptability to unforeseen changes. The public sector’s apparent advantage in cost of capital is at least partly illusory due to differences in tax liability and to constraints on the supply of public capital. The evidence for lower costs of construction or operation by private firms is slim. Private firms are likely to promote more efficient pricing. Effective private road provision depends on well-structured franchise agreements that allow pricing flexibility, restrain market power, enforce a sound debt structure, promote transparency, and foster other social goals.

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File URL: http://www.economics.uci.edu/files/economics/docs/workingpapers/2008-09/small-17.pdf
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Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080917.

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Length: 36 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:irv:wpaper:080917

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Keywords: Privatization; Road finance; Toll road; Road pricing;

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References

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  1. Erik T. Verhoef & Kenneth A. Small, 2004. "Product Differentiation on Roads," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 38(1), pages 127-156, January.
  2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262121743, December.
  3. 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.
  4. Dewatripont, Mathias & Legros, Patrick, 2005. "Public-private partnerships: contract design and risk transfer," EIB Papers, European Investment Bank, Economics Department 5/2005, European Investment Bank, Economics Department.
  5. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, American Economic Association, vol. 95(4), pages 1276-1289, September.
  6. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, August.
  7. Klein, Michael, 1997. "The Risk Premium for Evaluating Public Projects," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 13(4), pages 29-42, Winter.
  8. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Uncovering the Distribution of Motorists' Preferences for Travel Time and Reliability," Econometrica, Econometric Society, Econometric Society, vol. 73(4), pages 1367-1382, 07.
  9. 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.
  10. Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2006. "The marginal cost of public funds: Hours of work versus labor force participation," Journal of Public Economics, Elsevier, Elsevier, vol. 90(10-11), pages 1955-1973, November.
  11. Timothy C. Irwin, 2007. "Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects," World Bank Publications, The World Bank, number 6638, August.
  12. Pablo T. Spiller, 2008. "An Institutional Theory of Public Contracts: Regulatory Implications," NBER Working Papers 14152, National Bureau of Economic Research, Inc.
  13. repec:reg:wpaper:179 is not listed on IDEAS
  14. Ian W.H. Parry & Wallace E. Oates, 2000. "Policy analysis in the presence of distorting taxes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(4), pages 603-613.
  15. 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.
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Cited by:
  1. Clifford Winston & Jia Yan, 2008. "US Highway Privatization and Heterogeneous Preferences," Working Papers, School of Economic Sciences, Washington State University 2008-20, School of Economic Sciences, Washington State University.

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