Privatizing Highways in the United States
Major increases in congestion over the last two decades, combined with troubled government finances, have made private toll-roads increasingly attractive in the United States. Road privatization consists in having a private firm build, operate and maintain the road for many decades. The main (often only) source of income for the franchise holder is toll revenue. We review the experience of both private toll-roads built in the United States during the 1990s, and argue that the problems they encountered could have been avoided if the length of the franchise contract had adapted to demand realizations. We also argue in favor of adjudicating private toll-roads in competitive (Demsetz) auctions. Both advantages are attained if the highway is auctioned to the firm that bids the least present value of toll revenue (PVR), an approach we discuss in detail throughout the paper.
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