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Privatizing Highways in the United States

  • Eduardo Engel
  • Ronald Fischer

    ()

  • Alexander Galetovic

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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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120050905174916.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 209.

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Date of creation: 2005
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Handle: RePEc:edj:ceauch:209
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2003. "Renegotiation of concession contracts in Latin America," Policy Research Working Paper Series 3011, The World Bank.
  2. Clifford Winston, 2000. "Government Failure in Urban Transportation," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 403-425, December.
  3. Adams, Matthew & Hiatt, Rachel & Hill, Mary C. & Russo, Ryan & Wachs, Martin & Weinstein, Asha, 2001. "Financing Transportation in California: Strategies for Change (Final Draft)," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt7fh2v7zd, Institute of Transportation Studies, UC Berkeley.
  4. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Infraestructure Franchising and Government Guarantees," Documentos de Trabajo 29, Centro de Economía Aplicada, Universidad de Chile.
  5. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  6. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
  7. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, September.
  8. Eduardo M.R.A. Engel & Ronald D. Fischer & Alexander Galetovic, 1998. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," NBER Working Papers 6689, National Bureau of Economic Research, Inc.
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