Self-Financing Roads

In 1962, Mohring and Harwitz derived conditions under which an optimally designed and priced road would be self-financing. This paper briefly summarizes subsequent research on the relationship between congestion-toll revenues and road costs. Despite its transparency, the self-financing theorem can lead to erroneous interpretations. A simple numerical model is used to investigate three possible misinterpretations. The welfare losses are found to be substantial if capital and investment cost are confused or if a balanced-budget constraint is imposed under second-best network conditions. In contrast, losses from imposing a balanced-budget constraint when economies or diseconomies of scale exist are surprisingly small.

Language

  • English

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Filing Info

  • Accession Number: 01142841
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Oct 14 2009 2:29PM