Private Toll Roads: A Dynamic Equilibrium Analysis

In recent years there has been a surge of interest in private toll roads as an alternative to public free- access road infrastructure. Private toll roads have gained favour for a variety of reasons, including their potential to alleviate traffic congestion, shrinking public funds for road construction and maintenance, and growing acceptance of the user-pay principle. <BR><BR> This paper takes the profitability of private toll roads as given, and focuses on their allocative efficiency. The model features one origin and one destination linked by two parallel routes that can differ in capacity and free-flow travel time. Congestion takes the form of queueing. Individuals decide whether to drive, and if so on which route and at what time. Three private ownership regimes are considered: a private road on one route and free access on the other route, competing private roads, and a mixed duopoly with a private road competing with a public toll road. The efficiency gain (measured by social surplus) in each regime is measured relative to the efficiency gain derived from applying first- best optimal tolls on both routes. <BR><BR> Private toll roads are generally found to enhance efficiency. The efficiency gain is greater when tolls are varied over time to eliminate queueing, when competing routes are also tolled, when no private road has a dominant fraction of total capacity, and when a private road does not suffer a significant travel time disadvantage. Paradoxically, a mixed duopoly can be less efficient than a private duopoly. Price leadership by a public toll road operator avoids this possibility, although leadership typically yields little efficiency gain. <BR><BR>