Abstract
The build-operate-transfer (BOT) approach has become an attractive instrument for public facility provision, especially for a project that faces difficulty with public finance. This study analyzes the regulation alternatives on private highway investment under a BOT scheme and their impacts on traffic flows, travel costs, toll, capacity, and social welfare (total user-benefit in the traffic system including congestion). For comparison, five cases are analyzed: (1) No BOT with maximizing welfare, (2) No BOT with breaking even on finance, (3) BOT without regulation, (4) BOT with a minimum flow constraint (the total users will not be less than those in Case 1), and (5) BOT with a maximum travel cost constraint (the travel cost for users on a non-tolled road will not exceed the maximum tolerance). After each case is modeled and simulated on some functional forms, we find that the case of BOT with regulations performs between the cases of maximizing welfare and that of maximizing profit. From the perspective of the government, regulation has less power in a project with low elastic demand. Furthermore, even when the regulation is strict, a high cost-efficient firm with BOT could result in a higher level of social welfare than that without a BOT scheme.
Similar content being viewed by others
References
Branston D (1976) Link capacity functions: a review. Transportation Research 10: 223-236.
Broadman AE & Lave LB (1977) Highway congestion and congestion tools. Journal of Urban Economics 4: 340-359.
D'Ouville EL & McDonald JF (1990) Optimal road capacity with a suboptimal congestion toll. Journal of Urban Economics 28: 34-49.
Gomez-Ibanez J, Meyer JR & Luberoff DE (1991) The prospects for privatising infrastructure. Journal of Transport Economics and Policy 25: 259-278.
Gronau R (1994) Optimal road capacity with a suboptimal congestion toll. Journal of Urban Economics 36: 1-7.
Inman RP (1978) A generalized congestion function for highway travel. Journal of Urban Economics 5: 21-34.
Johansson B & Mattsson L-G (1995) Road Pricing: Theory, Empirical Assessment and Policy. Boston: Kluwer Academic Publishers.
Keeler TE & Small KA (1977) Optimal peak-load pricing, investment and service levels on urban expressways. Journal of Political Economy 85(1): 1-25.
Knight FH (1924) Some fallacies in the interpretation of social cost. Quarterly Journal of Economics 38: 582-606.
Kraus M, MohringH & Pinfold T (1976) The welfare costs of nonoptimum pricing and investment policies for freeway transportation. American Economic Review 66: 532-547.
Kraus M (1982) Highway pricing and capacity choice under uncertain demand. Journal of Urban Economics 12: 122-128.
Liu LN & McDonald JF (1999) Economic efficiency of second-best congestion pricing schemes in urban highway systems. Transportation Research Part B 33: 157-188.
McDonald JF (1995) Urban highway congestion-An analysis of second-best toll. Transportation 22: 353-369.
Mills G (1995) Welfare and profit divergence for a tolled link in a road network. Journal of Transport Economics and Policy 29: 147-164.
Mohring H & Harwitz M (1962) Highway Benefits: An Analytical Framework. Evansion IL: Northwestern University Press.
Morhring H (1970) The peak load problem with increasing returns and pricing constraints. American Economic Review 60(4): 693-705.
Nijkamp P & Rienstra SA (1995) Private sector involvement in financing and operating transport infrastructure. The Annals of Regional Science 29: 221-235.
Pigou AC (1920) Wealth and Welfare. London: Macmillan.
Small KA (1983) The incidence of congestion tolls on urban highways. Journal of Urban Economics 13: 90-111.
Solow R & Vickrey W (1971) Land use in a long narrow city. Journal of Economic Theory 3: 430-447.
Strotz R (1964) Urban transportation parables. In: Margolis J (ed) The Public Economy of Urban Communities. Baltimore: Johns Hopkins Press.
Verhoef ET, Nijkamp P & Rietveld P (1995) Second-best regulation of road transport externalities. Journal of Transport Economics and Policy 29: 147-167.
Vickery WS (1969) Congestion theory and transport investment. American Economic Review 59: 251-260.
Viton, PA (1995) Private roads. Journal of Urban Economics 37: 260-289.
Tiong RLK (1990) Comparative study of BOT projects. Journal of Management Science in Engineering, 107-122.
Tsai J-F & Jeng S-Y(1999) A study of highway congestion tax by multiple O-D approach. Taipei Economic Inquiry 36(1): 25-43.
Walters AS (1961) The theory and measurement of private and social cost of highway congestion. Econometrica 29(3-4): 676-699.
Wardrop J (1952) Some theoretical aspects of road traffic research. Proceedings of the Institute of Civil Engineers 1, Part 2: 325-378.
Wilson JD (1983) Optimal road capacity in the presence of unpriced congestion. Journal of Urban Economics 13: 337-357.
Yang H & Meng Q (2000) Highway pricing and capacity choice in a road network under a build-operate-transfer scheme. Transportation Research A 34: 207-222.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Tsai, JF., Chu, CP. The analysis of regulation on private highway investment under a build-operate-transfer scheme. Transportation 30, 221–243 (2003). https://doi.org/10.1023/A:1022503428001
Issue Date:
DOI: https://doi.org/10.1023/A:1022503428001