Welfare Impacts of Road Construction Using a Public -Private Partnership: A CGE Analysis of a Project

This paper analysis the welfare changes arising from a road project, undertaken as a public-private partnership, measured as the variation in utility, using a sequentially dynamic general equilibrium model. To circumvent the budget restriction imposed by the central government, the Azorean Regional Government embarked on a partnership to build a major road. The initial investment is supported by the private partner and, subsequently, amortised over a period. Payments are simulated through an increase in income taxes or a reduction in transfer payments, while taking into account the impact of the more efficient infrastructure through a reduction in the transport margins. It is found that under any type of repayment scheme the welfare benefits do not justify the road construction thus making it a poor investment decision.