Abstract
In this paper the authors refer to the method of commercial provision of road infrastructure called BOT (build-operate-transfer) under Public-private partnerships (PPPs) scheme. First we present the investment criteria for transportation PPP projects as well as application of price theory. Then we recognize that the different participants in PPP projects have distinct goals and requirements that must be met in order for them to be able to participate in an effective partnership. The main challenge for the toll road pricing is to determine the economically viable toll rate that takes into consideration the diverse and sometimes conflicting interests of different stakeholders involved in the project. The main objective is to review the theory of economic principles for optimal toll roads pricing and to review the existing approaches to transportation projects appraisal. Then the authors show how to formally derive the condition for toll rate that meets 2 criteria: 1) is socially optimal and 2) covers operator’s costs. For this purpose we use II type Tőrnquist function, a member of an Engel family of functions. This function models the relationship between income and consumption of inferior and normal goods. Tőrnquist function is a mathematical representation of the well-known Engel curves. We deem the highway trip to be a “second necessity good”.
Highlights
The development of transportation infrastructure is usually associated with high level of financial investment
Between 1990 and 2013 1680 private partnerships (PPPs) contracts were signed within the European Union representing an investment of over EUR 300 billion with transport being the largest sector in value and setting Europe as the key region of PPP development (Carbonara, Suárez-Alemán and Roumboutsos, 2016)
It is important to recognize that the different participants in PPP projects have distinct goals and requirements that must be met in order for them to be able to participate in an effective partnership
Summary
The development of transportation infrastructure is usually associated with high level of financial investment. Provided that extra-profit is still not sufficient to compensate the average cost, rest part of consumer surplus is transferred to the provider in the form of subsidy, which constitute a cost for tax payers (Liberadzki, 2014) In order to keep traffic volume at socially optimal level with the price lower than monopolistic and simultaneously avoid the necessity of subsidizing, the Grantor should give right to the private entity to abandon one general rate of toll and to diversify the price depending on the user category Such segregation leads to different prices for the same good in the particular segments of the market. The extremely simple form of the Tőrnquist function allows to get the solution in a closed form
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