Capacity cost structure, welfare and cost recovery: are transport infrastructures with high fixed costs a handicap?
In this paper, we consider a region that invests in infrastructure used by both local demand and through transport. We then compare transport systems that have, for a given capacity, the same total infrastructure cost but vary in the proportion of fixed costs and variable capacity costs. We show, first, that infrastructure which has (ceteris paribus) a higher share of fixed costs leads to higher welfare for the regional government building it. Contrary to what is commonly believed, it therefore requires less, rather than more, federal subsidies. Second, we find that, even for capacity characterized by, ceteris paribus, very high shares of fixed costs, financing of infrastructure is generally not an important issue as long as regions are allowed to toll through traffic. Third, if member states cannot toll through traffic, or if a federal authority (such as the EU or the USA) can impose pricing at the global marginal social cost, our analysis shows that this reduces investment incentives for the individual regions, and subsidies may be needed. We discuss the policy implications of these findings and illustrate all theoretical results numerically.
|Date of creation:||Mar 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +32-(0)16-32 67 25
Fax: +32-(0)16-32 67 96
Web page: http://www.econ.kuleuven.be/ew
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Levinson, 2001.
"Why States Toll: An Empirical Model of Finance Choice,"
200102, University of Minnesota: Nexus Research Group.
- David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(2), pages 223-237, May.
- Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-79, March.
- DE BORGER, Bruno & PROOST, Stef & VAN DENDER, K., .
"Congestion and tax competition in a parallel network,"
2004003, University of Antwerp, Faculty of Applied Economics.
- De Borger, B. & Proost, S. & Van Dender, K., 2005. "Congestion and tax competition in a parallel network," European Economic Review, Elsevier, vol. 49(8), pages 2013-2040, November.
- Bruno De Borger & Stef Proost & Kurt Van Dender, 2003. "Congestion and tax competition in a parallel network," Energy, Transport and Environment Working Papers Series ete0309, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
- DE BORGER, Bruno & PROOST, Stef & VAN DENDER, Kurt, 2004. "Congestion and tax competition in a parallel network," CORE Discussion Papers 2004018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- De Borger Bruno & Dunkerley Fay & Proost Stef, 2006.
"Strategic investment and pricing decisions in a congested transport corridor,"
Energy, Transport and Environment Working Papers Series
ete0602, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
- De Borger, B. & Dunkerley, F. & Proost, S., 2007. "Strategic investment and pricing decisions in a congested transport corridor," Journal of Urban Economics, Elsevier, vol. 62(2), pages 294-316, September.
- DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2006. "Strategic investment and pricing decisions in a congested transport corridor," Working Papers 2006021, University of Antwerp, Faculty of Applied Economics.
- de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
- Richard Arnott & Marvin Kraus, 1995. "Self-Financing of Congestible Facilities in a Growing Economy," Boston College Working Papers in Economics 304., Boston College Department of Economics.
- Zhang, Anming & Zhang, Yimin, 2003. "Airport charges and capacity expansion: effects of concessions and privatization," Journal of Urban Economics, Elsevier, vol. 53(1), pages 54-75, January.
- Richard J. Arnott & Ronald E. Grieson, 1978. "Optimal Fiscal Policy for State and Local Government," Working Papers 291, Queen's University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:ete:ceswps:ces0803. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karla Vander Weyden)
If references are entirely missing, you can add them using this form.