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Privatizing Highways in the United States

Author

Listed:
  • Eduardo Engel
  • Ronald Fischer
  • Alexander Galetovic
Abstract
Major increases in congestion over the last two decades, combined with troubled government finances, have made private toll-roads increasingly attractive in the United States. Road privatization consists in having a private firm build, operate and maintain the road for many decades. The main (often only) source of income for the franchise holder is toll revenue. We review the experience of both private toll-roads built in the United States during the 1990s, and argue that the problems they encountered could have been avoided if the length of the franchise contract had adapted to demand realizations. We also argue in favor of adjudicating private toll-roads in competitive (Demsetz) auctions. Both advantages are attained if the highway is auctioned to the firm that bids the least present value of toll revenue (PVR), an approach we discuss in detail throughout the paper.

Suggested Citation

  • Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2005. "Privatizing Highways in the United States," Documentos de Trabajo 209, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:209
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    References listed on IDEAS

    as
    1. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2003. "Renegotiation of concession contracts in Latin America," Policy Research Working Paper Series 3011, The World Bank.
    2. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2003), pages 129-164, August.
    3. Adams, Matthew & Hiatt, Rachel & Hill, Mary C. & Russo, Ryan & Wachs, Martin & Weinstein, Asha, 2001. "Financing Transportation in California: Strategies for Change (Final Draft)," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt7fh2v7zd, Institute of Transportation Studies, UC Berkeley.
    4. Clifford Winston, 2000. "Government Failure in Urban Transportation," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 403-425, December.
    5. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
    6. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
    7. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications - Books, The World Bank Group, number 15024.
    8. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Infraestructure Franchising and Government Guarantees," Documentos de Trabajo 29, Centro de Economía Aplicada, Universidad de Chile.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. de Brux, Julie, 2010. "The Dark and Bright Sides of Renegotiation: An Application to Transport Concession Contracts," Utilities Policy, Elsevier, vol. 18(2), pages 77-85, June.
    2. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany.
    3. Geddes, R. Richard & Wagner, Benjamin L., 2013. "Why do U.S. states adopt public–private partnership enabling legislation?," Journal of Urban Economics, Elsevier, vol. 78(C), pages 30-41.
    4. Clifford Winston & Jia Yan, 2008. "US Highway Privatization and Heterogeneous Preferences," Working Papers 2008-20, School of Economic Sciences, Washington State University.
    5. Jean-Michel Glachant & Stéphane Saussier, 2006. "Introduction," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 1-2, September.
    6. Athias, Laure & Saussier, Stéphane, 2018. "Are public private partnerships that rigid? And why? Evidence from price provisions in French toll road concession contracts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 111(C), pages 174-186.
    7. Rouhani, Omid M. & Niemeier, Debbie & Knittel, Christopher R. & Madani, Kaveh, 2013. "Integrated modeling framework for leasing urban roads: A case study of Fresno, California," Transportation Research Part B: Methodological, Elsevier, vol. 48(C), pages 17-30.
    8. Desrieux, Claudine & Chong, Eshien & Saussier, Stéphane, 2013. "Putting all one's eggs in one basket: Relational contracts and the management of local public services," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 167-186.
    9. Klein, Peter G. & Mahoney, Joseph T. & McGahan, Anita M. & Pitelis, Christos N., 2009. "Toward a Theory of Public Entrepreneurship," Working Papers 09-0106, University of Illinois at Urbana-Champaign, College of Business.
    10. Daniel Albalate & Paula Bel-Piñana, 2016. "Winners and losers in tolled motorway renegotiations: an empirical evaluation of the Spanish pioneers," Public Money & Management, Taylor & Francis Journals, vol. 36(5), pages 365-372, July.
    11. Athias, Laure, 2007. "Political accountability, incentives, and Contractual design of public private partnerships," MPRA Paper 10538, University Library of Munich, Germany.
    12. Viegas, José M., 2010. "Questioning the need for full amortization in PPP contracts for transport Infrastructure," Research in Transportation Economics, Elsevier, vol. 30(1), pages 139-144.
    13. Winston, Clifford & Yan, Jia, 2011. "Can privatization of U.S. highways improve motorists' welfare?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 993-1005, August.
    14. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.

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