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Pricing and investment of cross-border transport infrastructure

  • Se-il Mun


    (Graduate School of Economics, Kyoto University)

  • Shintaro Nakagawa

    (Institute of Economic Research, Kyoto University)

We develop a simple two-country model of international trade in which the transportation cost between countries is endogenously determined by decisions concerning capacity and price (road toll, rail fare) of infrastructure. We evaluate alternative regimes of pricing and investment, i.e., free access (e.g., public road), pricing and investment by two governments, and private operation. Comparisons between free-access and other regimes reveal that pricing plays a positive role of encouraging investment. However, pricing by governments results in lower welfare since excessively high prices are charged. We also show that higher welfare could be attained by elaborating the design of bidding systems for the right to build and operate the infrastructure.

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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 661.

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Length: 30pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:kyo:wpaper:661
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  1. Se-il Mun & Shintaro Nakagawa, 2008. "Cross-border transport infrastructure and aid policies," The Annals of Regional Science, Springer, vol. 42(2), pages 465-486, June.
  2. Ubbels, Barry & Verhoef, Erik T., 2008. "Governmental competition in road charging and capacity choice," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 174-190, March.
  3. 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.
  4. AndrÊ de Palma & Robin Lindsey, 2000. "Private toll roads: Competition under various ownership regimes," The Annals of Regional Science, Springer, vol. 34(1), pages 13-35.
  5. Eric W. Bond, 2006. "Transportation Infrastructure Investments And Trade Liberalization," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 483-500.
  6. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
  7. Erik T. Verhoef, 2005. "Second-best Road Pricing Through Highway Franchising," Tinbergen Institute Discussion Papers 05-082/3, Tinbergen Institute.
  8. Anderson, Simon P. & de Palma, Andre & Thisse, Jacques-Francois, 1988. "The CES and the logit : Two related models of heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 155-164, February.
  9. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  10. David Levinson, 2000. "Revenue Choice on a Serial Network," Working Papers 200001, University of Minnesota: Nexus Research Group.
  11. Yang, Hai & Meng, Qiang, 2000. "Highway pricing and capacity choice in a road network under a build-operate-transfer scheme," Transportation Research Part A: Policy and Practice, Elsevier, vol. 34(3), pages 207-222, April.
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