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Private Provision of Highways: Economic Issues

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  • Kenneth A. Small

    () (Department of Economics, University of California-Irvine)

Abstract

This paper reviews issues raised by the use of private firms to finance, build, and/or operate highways — issues including cost of capital, level and structure of tolls, and adaptability to unforeseen changes. The public sector’s apparent advantage in cost of capital is at least partly illusory due to differences in tax liability and to constraints on the supply of public capital. The evidence for lower costs of construction or operation by private firms is slim. Private firms are likely to promote more efficient pricing. Effective private road provision depends on well-structured franchise agreements that allow pricing flexibility, restrain market power, enforce a sound debt structure, promote transparency, and foster other social goals.

Suggested Citation

  • Kenneth A. Small, 2009. "Private Provision of Highways: Economic Issues," Working Papers 080917, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:080917
    as

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    File URL: https://www.economics.uci.edu/files/docs/workingpapers/2008-09/small-17.pdf
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    References listed on IDEAS

    as
    1. de Palma, Andre & Lindsey, Robin, 2002. "Private roads, competition, and incentives to adopt time-based congestion tolling," Journal of Urban Economics, Elsevier, vol. 52(2), pages 217-241, September.
    2. Pablo T. Spiller, 2009. "An Institutional Theory of Public Contracts: Regulatory Implications," Chapters,in: Regulation, Deregulation, Reregulation, chapter 3 Edward Elgar Publishing.
    3. Dewatripont, Mathias & Legros, Patrick, 2005. "Public-private partnerships: contract design and risk transfer," EIB Papers 5/2005, European Investment Bank, Economics Department.
    4. Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2006. "The marginal cost of public funds: Hours of work versus labor force participation," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1955-1973, November.
    5. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024.
    6. Ian W.H. Parry & Wallace E. Oates, 2000. "Policy analysis in the presence of distorting taxes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(4), pages 603-613.
    7. Timothy C. Irwin, 2007. "Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects," World Bank Publications, The World Bank, number 6638.
    8. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    9. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," Journal of Urban Economics, Elsevier, vol. 49(2), pages 310-336, March.
    10. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
    11. Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Uncovering the Distribution of Motorists' Preferences for Travel Time and Reliability," Econometrica, Econometric Society, vol. 73(4), pages 1367-1382, July.
    12. Klein, Michael, 1997. "The Risk Premium for Evaluating Public Projects," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 29-42, Winter.
    13. Erik T. Verhoef & Kenneth A. Small, 2004. "Product Differentiation on Roads," Journal of Transport Economics and Policy, University of Bath, vol. 38(1), pages 127-156, January.
    14. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2003), pages 129-164, August.
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    Cited by:

    1. Athena Roumboutsos & Aristeidis Pantelias, 2015. "Allocating Revenue Risk in Transport Infrastructure Public Private Partnership Projects: How it Matters," Transport Reviews, Taylor & Francis Journals, vol. 35(2), pages 183-203, March.
    2. Clifford Winston & Jia Yan, 2008. "US Highway Privatization and Heterogeneous Preferences," Working Papers 2008-20, School of Economic Sciences, Washington State University.
    3. Robin Lindsey, 2010. "Reforming Road User Charges: A Research Challenge For Regional Science," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 471-492.

    More about this item

    Keywords

    Privatization; Road finance; Toll road; Road pricing;

    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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