Privatizing Roads : A New Method for Auctioning Highways
The authors attribute many of the problems in highway privatization to the combined effect of features of the highway business and the fixed term contracts used. First, traffic forecasts are notoriously imprecise, and the franchise holder has almos...
| Main Authors: | , , |
|---|---|
| Format: | Viewpoint |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/1997/05/693105/privatizing-roads-new-method-auctioning-highways http://hdl.handle.net/10986/11586 |
| Summary: | The authors attribute many of the
problems in highway privatization to the combined effect of
features of the highway business and the fixed term
contracts used. First, traffic forecasts are notoriously
imprecise, and the franchise holder has almost no control
over demand. Second, most franchises have been awarded for a
fixed term that is independent of demand realization. They
propose a new mechanism the --least-present-value-of-revenue
auction-- that overcomes flaws in the fixed term franchise
because the contract term automatically adjusts to traffic
growth. If traffic grows more slowly than expected, the term
lengthens and if more rapidly, it shortens. The basic
principle underlying the auction is that the franchise
holder should not make losses when the long-run demand for
the highway is sufficient to pay all costs. |
|---|