Private Toll Roads Research Articles

Delivery of private toll roads: Incentive strategies for improving service quality and social welfare

Managing the service quality of toll roads delivered by using Public-Private Partnerships (PPPs) to ensure value for money to taxpayers is challenging for governments worldwide. An absence of critical research in this area has exacerbated this challenge. The upshot, in this instance, has been an inability for governments to engender and enact effective incentive strategies to operate and maintain private toll roads. To fill this gap, this paper aims to identify and examine incentive strategies for improving the operational quality of toll roads delivered by private entities. We develop a game model with four scenarios and then compare relevant decision behaviour and social welfare. The analysis reveals that only when the shadow cost of public funds is below a specific threshold there can be a feasible incentive strategy for ensuring quality improvement and higher social welfare. Furthermore, an incentive contract with a predetermined quality can enable a higher operational quality while requiring a higher incentive intensity. The contributions of this research are twofold: (1) we propose an enhanced model that is useful for governments to examine the impacts that different incentive strategies will have on the performance of transport projects; (2) we give an enhanced insight to support decision-making for incentives towards transport asset operations. This research will also be beneficial for governments in enhancing toll roads’ operational quality and social welfare for taxpayers.

Pareto Efficiency Analysis of Private Toll Road Networks

Pareto Efficiency Analysis of Private Toll Road Networks

Toll roads in Turkey: Private versus public

The main objective of this paper is to compare the toll rates on publicly and privately financed toll roads in Turkey. Public toll roads have reasonable toll rates and generate revenues that cover their costs, but public funds are not sufficient to expand the network. Private toll roads, on the other hand, have relatively high toll rates, resulting in low traffic volumes. This places a significant burden on the budget due to traffic-revenue guarantees. Turkish case shows that PPPs lead to higher tolls, resulting in the underutilization of infrastructure and efficiency losses. In the long run, traditional public financing seems to be the better option for toll road projects.

Waterpower and Allegan, Michigan

Waterpower and Allegan, Michigan Patrick R. Hudson On an out-of-the-way back street in the city of Allegan stands a remnant of Allegan's, and indeed Michigan's, industrial heritage. Enter Allegan from the southeast on M-89, turn on Second Street using the "Old Iron Bridge" to cross the Kalamazoo River, and follow Second Street to its end at Water Street. There, instead of turning left toward the business district, turn right and follow the signs to the mill district. Crossing the bridge, look to the right to find the Allegan dam. The bridge runs over what is left of the old millrace. Look to the left across the mill pond to find a small concrete block building on the spot where Allegan's industrial and civic origins began. The Origins of the City In 1837, Michigan became a state. The development of these forested peninsulas from territory to statehood was delayed for over a decade by Ohio's claims on the port of Toledo, originally within the territorial boundary of Michigan. For the new state legislature, its greatest challenge was overcoming the early characterizations—by General Duncan McArthur and Edward Tiffin, Surveyor General of the United States, among others—of Michigan as a mosquito-infested swamp.1 The publication of John Farmer's gazetteer Farmer's Guide to Michigan in 1830 was the first of a number of documents refuting previous detrimental characterizations of the state. It became one of the catalysts for the migration of New Englanders and upstate New Yorkers to the Michigan territory.2 This migration, characterized as "Michigan Fever," was a movement of communities rather than the "rugged individuals" of common myth. These groups generally included skilled tradesmen, such as millwrights, masons, carpenters, bakers, butchers, and seamstresses, as well as farmers and lumbermen. In many cases, a surveyor would be sent [End Page 105] out to find the type of land the community desired, then a company would be formed to purchase the land and organize development. This type of company founded the village of Allegan. A group of businessmen, known as the Boston Company, hired a surveyor to lay out an industrial town and seat of government for the new county of Allegan. The economic life of this community would be centered around a millrace providing waterpower for industries. The company was initially successful. Within two years, Allegan was incorporated as a village. The village's near central location allowed Allegan to claim the county seat. Waterpower was the cheapest, most abundant source of energy available until after the Civil War, when coal-powered steam engines began to replace waterpower.3 The siting of settlements at locations suitable for a dam and watermill was typical of settlement patterns during the 1830s. The nineteenth century was a time when the general impression in both Europe and Anglo-America was that the individual could use science and industry to overcome nature. The religious fervor of the Second Great Awakening fed the common belief that mankind held a God-given right to remake the natural world for its use and prosperity.4 As important as waterpower, technology, and the physical setting were for any location, transportation connections for Allegan became a limitation for future development. The ancient aboriginal trail to the north and south in western Michigan ran ten miles east of the settlement, and the Kalamazoo River, running through the village site, did not have enough depth year-round to support river transport for heavy cargo to or from Lake Michigan.5 Michigan's territorial government (from 1827-1835) and state legislature (from 1835-1844) experimented with various means of funding roads. None of the territorial roads reached Allegan County. The 1835 state constitution provided for transportation improvements, but the Panic of 1837 put an end to state funding. This was followed in 1844 by the Plank Road experiment, which amounted to licensing private toll roads but proved to be a failure due to the very short lifespan of such roads. Michigan's 1850 constitution turned the question of road funding over to local townships and allowed for conscript labor to construct and maintain such roads. This method failed to provide for any...

Subsidizing and pricing private toll roads with noncontractible service quality: A relational contract approach

In private toll roads, some elements of the private operator’s performance are noncontractible. As a result, the government cannot motivate the private operator to improve them through a formal contract but through a self-enforcing contract that both parties are unwilling to deviate unilaterally. In this paper, we use noncontractible service quality to capture these performance elements. By employing a relational contract approach, we aim to investigate the optimal subsidy plan to provide incentives for quality improvement. We show that government subsidy is feasible in quality improvement when the discount factor is sufficiently high and marginal cost of public funds is sufficiently small. Under feasible government subsidy, we have demonstrated the optimal subsidy plans in different scenarios. Moreover, some comparative statics are presented. Based on the derived subsidy plans, we further investigate the optimal toll price. We find that the optimal toll price generates zero surplus for the private operator and positive surplus for consumers. We then make two extensions of our model to re-investigate the government’s optimal decisions on subsidy plan and toll price when her decision sequence is changed and when government compensation is present upon termination of the relationship. Some implications for practice have been derived from our model results.

Benefit distribution of private toll road: a cumulative prospect theory model with heterogeneous users

ABSTRACTThis paper examines how capacity and toll choices of the Build–Operate–Transfer mode affect the benefit distribution among private sector, road users and public under the framework of cumulative prospect theory. In the proposed network equilibrium model, we divide all road users into several classes differentiated by their valuation of travel time, and let the class-specific travel demand be endogenous. Our numerical results show that the benefit distribution is indeed influenced by the travellers' risk preference parameters significantly. Thus, administrators should carefully consider the travellers' risk attitude and their heterogeneity before determining whether or not to employ the Build–Operate–Transfer mode.

E-Toll Roads: Analysing a Case of Collective Moral Disengagement in an e-Government Project

There has been little research that examines how public managers involved in e-government decisionmaking can sometimes negatively affect the welfare of citizens and waste public resources. case study analyses collective moral disengagement mechanisms used by leaders and their subordinates to justify a controversial urban e-tolling project in South Africa. Using deductive content analysis, legal documents and public records were coded for modes of moral disengagement. results show that public managers morally exonerated their decision: by endowing it with socially worthy purposes; euphemistic labelling; displacing and diffusing responsibility; downplaying negative consequences; making favourable comparisons; and disparaging and blaming opposing groups. Enhancements to existing governance frameworks and broader societal safeguards are recommended to prevent moral transgressions and improve e-government decisionmaking. Specific tactics for reputation rebuilding are also recommended when the publicity of alleged moral transgressions is high. Further research is needed to investigate how e-government leaders and broader social actors can engage public managers to enhance transparency and accountability. CASE STUDY CONTEXT: E TOLLING PROJECT IN LIMBO research is conducted on one of South Africa's most controversial e-government projects - the Gauteng Open Road Tolling (ORT) project. project, initiated in 2006, has sparked a challenge from various groups in civil society and has been embroiled in a lengthy legal battle. South African National Roads Agency Limited (SANRAL), a state-owned enterprise, is primarily responsible for the financing, development, maintenance and rehabilitation of South Africa's 16 170km national road network. Its activities include non-toll and toll operations. Toll roads are self-funding based on the user-pays principle. SANRAL has used two types of tolling: traditional toll collection at a toll plaza; and electronic toll collection (ETC), where either credit cards or an electronic transponder system (e-tag) identifies the vehicle and allows it to pass. Most of the conventional tolls are on newly built routes for long distance destinations, mainly found on regional roads. There has been increasing interest in private toll roads as an alternative way of meeting highway needs. SANRAL has partnered with private entities to design and build the facilities and manage these operations. controversial ORT project intends to use overhead gantries approximately every 10km along Gauteng's existing urban highway system to collect toll fees electronically. gantries are fitted with electronic readers that recognise vehicle identifiers such as e-tags or vehicle number plates - and are set to automatically deduct toll fees from a road user's registered e-toll account. Users would be serviced by a complex of service channels including a call centre and website, e-toll kiosks and e-tag outlets at various shopping malls, and e-toll customer-service centres situated along the freeway network. SANRAL has also procured a central account management and clearing system, and established a violations processing centre as part of the operation. Lack of transparency has been the hallmark of the e-toll project. Public managers voiced their reluctance to share vital information. For instance SANRAL initially refused to disclose details of the Electronic Toll Collection Joint Venture: The information requested by Opposition to Urban Tolling Alliance (OUTA) is and remains the intellectual property of third party organisations (SAPA, 2012a).The decision to use a foreign company instead of stimulating the development of local technology was also questionable. Headquartered in Austria, the e-tolling and traffic solutions firm and the largest shareholder in the e-tolling consortium, reported in the 2010/11 financial year that its road solutions projects segment, under which e-tolling falls, grew 247% year-on-year (Rasool, 2012). According to the CEO: This positive development resulted largely from electronic toll collection system implementations in SA and Poland (ibid). Opponents claim that the Government Employee Pension Fund (GEPF) holding R15.7 billion in SANRAL bonds was another reason for the lack of transparency (ibid). Some critics argued that this conflict of interest was the real reason government insisted on pursuing the project, despite its unfeasibility and despite it facing public resistance (ibid).

Fundamental properties of volume–capacity ratio of a private toll road in general networks

It has been addressed in the existing literature that the volume–capacity (v/c) ratio on a private toll road is constant, regardless of the toll value and capacity set by the private companies for each toll road in the network. The previous derivation depends on the assumption that the user equilibrium flow on the private toll road is continuously differentiable with respect to its capacity and toll charge. In this paper, it is shown that the constant v/c ratio phenomenon still holds via relaxing this assumption. Such phenomenon is further examined in different scenarios: the v/c ratio remains constant under the demand regulation, markup charge regulation, and social cost minimization scheme; it may change under the rate-of-return regulation; it may decrease under capacity regulation and increase under the price-cap regulation. Moreover, this paper demonstrates that the v/c ratio may change if there are decreasing or increasing returns to scale in road construction, or the road capacity can only take discrete values, or link flow interactions are involved, whereas the v/c ratio remains constant in case of elastic demand.

Road pricing and investment

Traffic congestion is a bane of modern city life. Transportation economists have long supported road pricing as a tool for controlling congestion and the idea is slowly coming into practice. This paper reviews the theory of congestion pricing and the relationship between optimal congestion tolls and optimal road capacity. It is organized around four questions. Is congestion pricing according to marginal-social-cost principles consistent with covering the costs of road infrastructure? How does road pricing affect optimal road capacity? How does road pricing affect optimal public transportation fares and capacity? Do private toll road operators make socially efficient toll and capacity decisions? The paper concludes with an assessment of long-run trends in travel demand and technology that could alter the evolution of traffic congestion and priorities for road pricing and investment.

Impact of Regulation and Network Topology on Effectiveness of Roadway Privatization

An agent-based model of roadway privatization is developed to evaluate pricing and capacity decisions for private toll roads when they compete with existing public roads. The model is demonstrated on a hypothetical grid and beltway structure network. Several simulation scenarios are presented to illustrate the effects of regulation policy packages of privatized roads and the influence of public and private network hierarchy on network growth patterns. From the simulation results of the developed agent-based model, several insights are provided on the impacts of ownership and network structures on the socioeconomic performance of transportation systems. Both the analytical findings and the application results on test networks are in favor of introducing private toll roads to current public road systems characterized by growing congestion, insufficient public funding, and inefficient pricing practices. When properly regulated, a privatized transportation network can achieve net social benefits close to the theoretical optimum and distribute a high percentage of welfare gains to travelers. Although the public sector is still able to expand roadway capacity gradually over time, additional revenue sources from privatization help to increase network capacity and to bring it closer to the optimal levels on public roads.

THE COMPETITIVE ADVANTAGES OF THE SPANISH COMPANIES IN THE INTERNATIONAL TOLL ROAD INDUSTRY / ISPANIJOS ĮMONIŲ KONKURENCINIS PRANAŠUMAS TARPTAUTINIAME MOKAMŲJŲ KELIŲ SEKTORIUJE

Private toll roads have experienced a notable worldwide expansion in the last two decades. In the early 1990s, many countries began to offer motorway concessions to private investors, most notably in Latin America, Central and Eastern Europe. In the late 1990s and 2000s, the innovation spread to countries in Asia, North America and Western Europe. The Spanish construction companies have been awarded many more concessions than their main rivals together, and they have become prominent in many of the countries with the most significant toll road programs. This paper analyses the competitive advantages that the Spanish companies have enjoyed in the international toll road industry in the last two decades. We argue that they have benefited from the fact that their home country was a pioneer in offering motorway concessions; from a cultural advantage in dealing with Latin America; and from their decision to integrate construction, concession, and investor functions in a single company. The paper also analyses to what extent the road concessions the Spaniards have won are generally profitable. Santrauka Per pastaruosius porą dešimtmečių privačių mokamųjų kelių pagausėjo visame pasaulyje. XX a. paskutinio dešimtmečio pradžioje daug šalių privatiems investuotojams pradėjo siūlyti autostradų koncesijas, ypač Lotynų Amerikoje ir Centrinėje bei Rytų Europoje. XX a. paskutinio dešimtmečio pabaigoje ir per pirmąjį XXI a. dešimtmetį ši naujovė išplito Azijos, šiaurės Amerikos ir Vakarų Europos šalyse. Ispanijos statybų imonės gavo daugiau koncesijų nei visos pagrindinės jos konkurentės kartu ir dabar yra gerai žinomos daugelyje šalių, taikančių reikšmingiausias mokamųjų kelių programas. Šiame darbe nagrinėjami pastaruosius du dešimtmečius tarptautiniame mokamųjų kelių sektoriuje Ispanijos įmonių turėti konkurenciniai pranašumai. Jos pasinaudojo tuo, kad jų gimtoji šalis pirmoji pradėjo siūlyti autostradų koncesijas, kultūriniu pranašumu dirbant Lotynų Amerikoje ir savo sprendimu vienoje įmonėje sujungti statybų, koncesijų ir investuotojo funkcijas. Be to, darbe nagrinėjama, kiek ispanų gautos kelių koncesijos yra pelningos bendrąja prasme.

Mexico's private toll road program reconsidered

Mexico's private toll road program of 1989–1994 is famous both as one of the first and the most ambitious highway privatization programs among the developing countries and as one of the most dramatic failures. In just five years Mexico awarded 52 concessions totaling over 5300 km of toll roads, but as early as 1993 many of the concessions had to be renegotiated and in 1997 the government was forced to takeover 23 of them at an immediate financial cost of billions of dollars. This paper reconsiders the Mexican program and, with the benefit of hindsight, argues that it does not deserve its bad reputation. Although Mexico made some important mistakes in the design of the concessions, many of the highways turned out to be socially worthwhile investments. Moreover, the restructuring of the concessions in 1993–1997 converted many of them into financially profitable projects over the long-term, while the 1997 bailout ended up costing the government little in budget terms.

Restless Americans: The Significance of Movement in American History (With a Nod to F. J. Turner)

The Thesis Regardless of merits of Frederick Jackson Turner's Thesis (Turner), it is clear that from first days of Republic, phenomenon of movement characterized Americans, and influenced them as much as did frontier. Directly or indirectly it influenced virtually everyone, from elites to dispossessed; its influence continues. Understanding that influence? which can be quite subtle as well as overt? requires more than familiarity with integrated history of transportation, and certainly more than familiarity with railroads, airlines, or automobile with its highways. How has freedom? and at least as important, ability? to move affected Americans' views of themselves, their tendency toward individualism, their government and politics, their environment, and structure of their daily lives? To be sure, especially in country's early decades, movement affected different groups in varied ways. Native populations tended to be pushed aside - or more likely, far away? often even to be crushed. Those of African descent frequently found themselves forcibly moved by having been sold, or relocated as slaveholders increasingly occupied territories. After passage of decades when automobile culture burgeoned, African Americans participated in restless movement across nation as did other Americans, but even during much of twentieth century, as discussed below, they faced obstacles to their movement that most of population did not encounter. The people's push westward covering continent? and extending beyond into Pacific and north to Alaska? is only most dramatic manifestation. When Yale's George W. Pierson nearly five decades ago wrote of M-Factor in American history, he defined term as migration, mobility, and identified M-Factor as key to what nation had become (Pierson 78). Pierson apparently hoped that American historians would take up his coinage as they had done Frontier Thesis, and that it would enter American Studies discourse and become as common there as John Kenneth Galbraith's felicitous phrase, conventional wisdom (from his 1958 classic, The Affluent Society) was to become in general public's vocabulary (Galbraith chap. 3). It was not to be. Perhaps failure came about because Pierson was merely developing academic jargon to apply to obvious. Certainly, though, Pierson was correct. Americans were restless from beginning, and remain so. Early Government and Movement on Road and Water Already by 1790s, a boom had begun in construction of private toll roads. Earlier roads generally had been creations of local governments, which meant? in view of limited resources available? that they were poorly built and maintained, limited in distance, and otherwise wholly inadequate. As Republic began, the poor state of road system was a major problem .... a viable steamboat had not yet been built, canal construction was hard to finance and limited in scope, and first American railroad would not be completed for another forty years (Klein and Majewski). This meant that improvements in transportation required better roads, and it meant also that private resources would be required to supplement limited resources available to public bodies. In 1792, Pennsylvania chartered first private turnpike in country, spanning 62 miles between Philadelphia and Lancaster. By 1810, there were nearly four hundred such roads (Klein and Majewski). Until coming of railroad, only options for movement were by horseback, wagon or carriage, on foot, or by water. Water afforded easiest movement, but greatly restricted direction and destination. Ingenious Americans looked for ways to bend waterways to their will, and ultimately managed to overcome many of obstacles to canals, since they seemed to be obvious solution to problem. …

The Private Provision of Roads: Solutions to the Apparent Monopoly Power of Private Road Commissions

This paper examines the private provision of road. One could imagine that private road commissions would act as a monopoly, charging prices in excess of competitive levels, restricting access to the roads, and failing to maintain their roads at a competitive standard. To analyze this claim, I will examine the viability of private toll roads throughout the 19th century America. Despite the apparent efforts of the local government to thwart such activity, natural competitive checks existed that prevented private road companies from engaging in monopolistic behavior.

Internal Improvements to Public Works to Infrastructure: Tolling in California and the Public/ Private Dichotomy in Historical Perspective

This article considers the administration of toll-financed transportation infrastructure in its larger historical context, through an overview of the political economy of public works in the United States. The decision to shift responsibility for California’s toll bridges to a state-level authority in 1929 reflected larger, long-term political and institutional trends as well as the powerful influence of Progressive Era ideology. Similarly, political and institutional developments since the 1970s have propelled initiatives to establish new mechanisms for infrastructure financing, administration, and management in California and elsewhere and suggest that private toll roads may again be on the horizon in a new era of free-market ideology.

The independence of volume–capacity ratio of private toll roads in general networks

In a general traffic network under some widely used assumptions, this paper proves that the level of service, represented by the volume–capacity ( v/ c) ratio, offered by a profit-maximizing private firm on a private toll road is independent of another competitor’s choice of capacity and toll rate for another private toll road. The v/ c ratio will be the same as the one provided by a centralized welfare-maximizing traffic authority. Moreover, the ratio remains the same even in a regulated market where the authority imposes a cap for the generalized travel cost on the private toll road.

Control Strategy on Road Toll Pricing under a BOT Scheme

Abstract On the basis of the game theory, this article deals with the problem for the government to control the pricing of private toll roads under a BOT scheme. The discusses whether the toll road can bring benefits to society when the private sector determines the toll road price independently in pursuit of maximizing his own profit. Moreover, the principles, by which the government controls private road pricing, are deduced. Some useful findings are obtained, which can provide important support for the government to manage the BOT project.

Welfare and Financial Implications of Unleashing Private-Sector Investment Resources on Transportation Networks

With an increasing number of private toll road projects constructed or proposed in the United States through various forms of public–private partnerships and with more states removing legal constraints to the entry of private roads into the existing public road system, there are imperative needs to analyze the welfare and financial implications of using private-sector capital in road financing for public policy decisions and private investment decisions. This paper develops models of market entry, price, and capacity choices on mixed-ownership networks to address these research needs. A small-network equilibrium model enables theoretical analysis of welfare and financial effects of private toll roads on stylized parallel and serial networks, and an evolutionary simulation model is applicable to large real-world networks. The calibrated evolutionary model for the Twin Cities, Minnesota, road network (7,776 nodes, 20,486 links) shows that under a free-entrance policy without any toll or capacity regulation on private roads, the private sector would invest $19.5 billion in the next 15 years to construct more than 400 lane kilometers of private freeways. The average annual rate of investment returns would be 18.2% for private investors. The total social welfare would be improved by more than $6.7 billion, with only 16.4% of the welfare gains enjoyed by system users. The average toll on private roads would be $0.17/km, about seven times higher than that on public roads. Findings suggest that unleashing private-sector investment resources alone can provide only one-fourth of the total new capacity needed to build our way out of congestion. To attract private-sector investments, public policy makers do not have to, nor should they, guarantee short-term profits for private toll roads when there exist multiple private investment firms. Private investors can efficiently find optimal tolls and increase profits by making adjustments with adaptively learned demand information.

Private Roads: Auctions and Competition in Networks

This paper studies the efficiency impacts of private toll roads in initially untolled networks. The analysis allows for capacity and toll choice by private operators, and endogenizes entry and therewith the degree of competition, distinguishing and allowing for both parallel and serial competition. Two institutional arrangements are considered, namely one in which entry is free and one in which it is allowed only after winning an auction in which patronage is to be maximized. Both regimes have the second-best zero-profit equilibrium as the end-state of the equilibrium sequence of investments. But the auctions regime approaches this end-state more rapidly: tolls are set equal to their second-best zero-profit levels immediately, and capacity additions for the earlier investments are bigger. When discreteness of capacity is relevant and limits the number of investments that can practically be accommodated, the auctions regime may therefore still result in a more efficient end-state, with a higher social surplus, although the theoretical end-state is the same as under free entry.

Auctioning concessions for private roads

Private toll roads are now seriously considered as an alternative to public (free-access) road infrastructure. Nevertheless, complete private provision without governmental control is only rarely considered. A main consideration against private roads would be that operators would be primarily interested in maximizing profits, which – given the market power they will have – will typically not lead to welfare-maximizing tolls and capacities. An important question is whether these discrepancies can be mitigated by a proper design of auctions for concessions of private roads. This paper therefore analyses capacity choice and toll setting by private investors in a competitive bidding framework organized by the government. We develop a two-link network simulation model with an untolled alternative to determine relative efficiency effects, and analyze rules for the government to organize the bidding process such that a more desired (welfare optimal) outcome is achieved. Our results show that, depending on the design of the auction, its outcomes may vary strongly, and may approach the maximum possible (second-best) welfare gains.