The Consideration of Local Preferences in Transport Infrastructure Development: Lessons from the Economics of Federalism

The construction of large public infrastructure projects of national importance, such as nuclear power plants, wind farms, electricity, highway or railway lines, regularly leads to mass protests in the population. The main problem is the impact of negative external effects on the people living nearby, which are not taken into consideration during the planning process by the national builders. Democratic coordination processes fail in solving the challenge, for here the problem of ‘institutional incongruence’ usually arises. This means that the policy makers responsible for the provision of public infrastructure, its users or those affected by it as well as the taxpayers, who finance these services, are not the same people. If the competencies for decision-making, use and financing are separated from one another, then incentives arise to live at the expense of others. The article examines the case of the expansion of the Rheintalbahn on the southern Upper Rhine using the Coase Theorem, and analyses the conditions under which negotiations between the parties involved can lead to an efficient result when building public infrastructure.