This paper analyses indirect effects that arise from network interdependence. If profitability of a new, tolled link depends on extraction of user surpluses previously enjoyed on the earlier network, addition of the new link can be welfare-negative. Thus the profit test cannot displace cost-benefit analysis.
Topic: 5.1 Highways
The road damage externality is much more important than the urban congestion problem in less developed countries, in sharp contrast to the experience of the developed countries. There is no justification for petrol taxes to exceed the taxes imposed on diesel fuel.
A computer simulation is used to compared uniform tolls on a congested facility against a price-discriminating toll scheme. The simulation illustrates that consumers would gain from discriminatory tolls. Price-discriminating user fees on crowded facilities with rationing by queues should be given due consideration.
The current methods of franchising highways in America have been devised in haste. The project should first be defined and then guided through environmental approval by an independent state body. It could then be auctioned, and the winning bidder would complete the final design, finance, construct and operate the highway.
An equilibrium model is used to explore the relationship between traffic forecasts and highway investment benefits under changes in variables such as car ownership, economic activity and travel costs. Failure to incorporate the effects of cost changes may lead to substantial overestimation of both traffic volumes and measures of user benefits over the lifetime of a project. The implications for conventional methods of highway appraisal are considered.
This paper analyses optimal pricing of rail infrastructure use, and optimality conditions for rail and road investment. It is demonstrated that under most circumstances rail charges should be below marginal costs and that investments in both modes should be reduced.
While the private sector may be able to build facilities faster and operate them at lower cost, other considerations are equally important. The debate over cost advantages, moreover, often fails to distinguish between those savings that are net efficiency gains to society as a whole and those that represent transfers. To investigate these issues, this paper contrasts the US experience in the privatisation of highways and solid waste disposal facilities.
It is commonly agreed that the relationship between toll revenue and capacity cost under marginal cost pricing depends on scale economies. What is disagreed is how to measure these scale economies. This note investigates this issue and concludes that, in measuring the relevant scale economies, factor prices should be kept fixed.
The problem of setting a socially relevant ranking of investment projects in the presence of budgetary restrictions and incomplete information is examined. An actual road investment programme, settled under these conditions, is analysed. Observed behaviour is shown to be only partially compatible with social welfare maximising principles.