Optimal Provision of Infrastructure using Public-Private Partnership Contracts

This paper deals with the optimal provision of infrastructure by means of public-private partnership contracts. In the economic literature infrastructure is characterized as a large, indivisible and non-rival capital good that produces services for its users. The non-rivalness or nonexcludability of the infrastructure and the large costs of infrastructure causes it to be a public good. On the other hand, infrastructure possesses characteristics of a private commodity because it facilitates of the use of a complementary private commodity. Modern monitoring techniques open new possibilities to reveal the need of individual users for infrastructure. Consequently, a large part of the public financing of infrastructure can be privatised. In this paper we discuss the design of an operational system to finance the costs of infrastructure. It will be shown that the system basically can result in an economically efficient level of infrastructure. The basic idea is that use of infrastructure is constrained by the availability of the infrastructure being provided. Therefore users who are hampered by too small a provision of the infrastructure are willing to pay for the use of infrastructure.