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Can privatization of U.S. highways improve motorists' welfare?

  • Winston, Clifford
  • Yan, Jia

We assess the welfare effects of highway privatization accounting for government's behavior in setting the sale price, firms' strategic behavior in setting tolls, and motorists' heterogeneous preferences for speedy and reliable travel. We find motorists are able to benefit from privatization by negotiating tolls with private providers that increase their consumer surplus. Surprisingly, we find that by obtaining tolls and service that align with their varying preferences, motorists may be better off negotiating with a monopolist than with duopoly providers or under public–private competition. Toll regulation may be counterproductive because it is likely to treat motorists as homogeneous.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7 ()
Pages: 993-1005

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:993-1005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  15. Paul Calcott & Shuntian Yao, 2005. "Competition between highway operators: can we expect toll differentiation?," Economic Growth Centre Working Paper Series 0504, Nanyang Technological University, School of Humanities and Social Sciences, Economic Growth Centre.
  16. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Differentiated Road Pricing, Express Lanes and Carpools: Exploiting Heterogeneous Preferences in Policy Design," Working Papers 050616, University of California-Irvine, Department of Economics, revised Mar 2006.
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