Abstract
This paper offers a simplified 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 refer to this requirement as the ’strict self-financing constraint’ to distinguish it from the traditional form for self-financing that allows borrowing from the capital market. Two small test 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.
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