Geddes & Nentchev: From Free to Priced Infrastructure – U.S. Roads and the Investment Public-Partnership

ABSTRACT:

Much of microeconomics focuses on price system operation since prices are critical for allocating the demand for and the supply of goods and services. However, the use of major U.S. infrastructure assets remains un-priced (or “free”). Moving to priced provision has redistributive effects that can halt its implementation. Despite severe environmental harms from un-priced transportation infrastructure, economists have offered surprisingly few strategies for addressing such objections, even though pricing creates additional wealth that can help compensate potential losers. We describe a novel approach that relies on basic property laws to enhance the appeal of shifting from un-priced to priced road transportation services. Pricing of previously free road services allows value embedded in that infrastructure to be released. Value can be realized immediately through upfront concession lease payments offered by private operating companies in exchange for receiving the toll revenue from newly priced roads. We propose preserving a portion of the added wealth generated by pricing in a pubic permanent fund and distributing dividends from the fund’s investment income to the infrastructure’s citizen-owners. Dividends mitigate the redistributive effects of pricing and thus facilitate its adoption. Permanent funds are currently used in Alaska, Alberta, Texas, Norway and many other jurisdictions to preserve natural resource wealth. They can be innovatively applied to encourage road pricing, which mitigates a variety of environmental harms.

 

Available for download here.

 

Advertisements