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Network development under a strict self-financing constraint


  • André De Palma
  • Stef Proost
  • Saskia Van Der Loo


This paper offers a stylized model in which an agency is in charge of investing in road capacity and maintain it but cannot use the capital market so that the only sources of funds are the toll revenues. We call this the strict self-financing constraint in opposition to the traditional self financing constraint where implicitly 100% of the investment needs can be financed by loans. Two stylised problems are analysed: the one link problem and the problem of two parallel links with one link untolled. The numerical illustrations show the cost of the strict self-financing constraint as a function of the importance of the initial infrastructure stock, the rate of growth of demand, the price elasticity of demand and the flexibility in the pricing instruments.

Suggested Citation

  • André De Palma & Stef Proost & Saskia Van Der Loo, 2008. "Network development under a strict self-financing constraint," Working Papers Department of Economics ces0829, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0829

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    References listed on IDEAS

    1. Newbery, David M, 1988. "Road Damage Externalities and Road User Charges," Econometrica, Econometric Society, vol. 56(2), pages 295-316, March.
    2. Charles Raux & Aurélie Mercier & Stéphanie Souche, 2007. "French multi-modal transport funds: issues of cross-financing and pricing," Post-Print halshs-00178530, HAL.
    3. Erik T. Verhoef & Herbert Mohring, 2007. "Self-Financing Roads," Tinbergen Institute Discussion Papers 07-068/3, Tinbergen Institute.
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    More about this item


    Cost-benefit analysis; road tolling; self-financing; infrastructure investments; congestion; bottleneck model.;

    JEL classification:

    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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