Abstract
Motorways are one of the largest capital stocks of transportation infrastructure. It is therefore important to try to optimize their provision and management. This paper contributes to this goal by analysing France’s historical long term experience through the prism of economic theory, and by offering suggestions and perspectives for the future. The first section presents a short history of motorway provision in France. It shows how the general framework evolved from isolated links to an integrated network. It discusses how concerns have changed with the growing importance of external factors; these changes are analysed in terms of economic characteristics, namely the relative importance of uncertainty, externalities and network effects. Finally, it assesses how the political decisions have had a major influence, mainly through the privatisation process and through changes in regulations. The second section uses these characteristics to make suggestions and recommendations on how to provide motorways. The main issues considered are the scope of a concession, and the architecture of the contract regarding toll regulation and incentives. Hints about possible future evolutions are presented too, concerning the choice between concession and public provision of motorways, and concerning the separation between infrastructure provision and management. The third section concludes by suggesting some research tracks that may help improving international knowledge through comparison between countries.
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Notes
In this paper the word “motorway” has the European English meaning, i.e. “A road specially designed and built for motor traffic, which does not serve properties bordering on it, with separated carriageways for the two directions of traffic, which does not cross at level with any road or motorway and is reserved for specific categories of road motor vehicles” (World road association-PIARC dictionary).
See for instance Cour des Comptes 1974
Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts; see also the EU Commission Communication on public–private partnerships and Community law on public procurement and concessions COM/2005/569 of 15 November 2005
Risks and uncertainty considerations are developed in a broader context just before the concluding section. In the economic literature, the term “risk” usually covers situations where all possible future outcomes (“states of nature”) are known and can be given a precise value as to their probability of occurrence. “Uncertainty” covers situations where probabilities cannot be computed or defined, or where all possible outcomes are not known. In practice, unlike in situations where there are a large number of draws from the same distribution, motorways are unique objects for which detailed updated probabilities may not be estimated precisely: they are subject to “uncertainty” in the economic meaning of the word. Here, we will use the term “risk” in its common meaning of “risk factor”.
However, possible side effects may occur, for example on cost reduction efforts or on bidding strategies, and we lack long-term experience of such contracts.
Experience shows that contracts of this type usually never go to their end without breach.
A price-cap is the limited flexibility left to the concessionaire to decide on toll levels, up to a maximum level. Incentive theory indicates that, through price-cap regulation, even if the incentive scheme is highly powered it is not necessarily the optimal one. Letting a concessionaire choose from a menu of contracts should help reveal part of its information and help determine a more optimal scheme, which is somewhere between the polar cases of “cost-plus” (reimbursement of costs, plus a fee) and “price-cap”. Nevertheless, we will proceed from now on using the term “price-cap” in order to simplify, since we will try to go more deeply into more specific issues, and because this simple scheme is used very often.
X-inefficiency is the difference between efficient behavior of firms assumed or implied by economic theory and their observed behavior in practice (Leibenstein 1966).
Rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profit through economic transactions and the production of added wealth (Tullock 1987).
While the trend towards a “commercial” management leads the company to offer a “service” to the users, and not only an infrastructure to the community (a service more than an asset), in France these services are yet more devoted to road safety.
The majority of projects, which are profitable from a socio-economic point of view, are not profitable in financial terms due to external effects: there is a fundamental distinction between financial rate of return and the socio-economic rate of return. In case of toll concession projects for instance, in a country without tolling experience, initial public support is often necessary to have the toll motorway system take off.
A regulation where the regulator imposes an upper bound on the firm’s realized rate of return on its physical capital. This type of regulation may not capture the whole flavour of rate of return regulation. See Evans and Guthrie (2005) for a more elaborate concept where the regulator sets the prices for all of the goods and services provided by the regulated firm.
The Averch-Johnson effect is the excessive capital accumulation that firms engage in so as to expand their profits, when they are submitted to rate of return regulation. Averch and Johnson (1962).
It will be interesting to observe how the actions related to sustainable development evolve in the privatized motorway companies, or after some take-overs.
Other means of disconnecting concessionaire’s revenues from traffic levels exist. An example is given by the A Betrieber Modell concessions that will be paid with LKW Maut (Heavy Goods Vehicle toll) revenues.
And a distinction must be made between two different types of activities, the collection of toll fees and the infrastructure operation. In Germany for instance under the A Betreiber Model, the multilane extension of existing motorway sections as well as their maintenance, operation and financing may be assigned to private investors whose remuneration may be backed by LKW Maut, the “toll collector”.
High powered incentives need very credible commitment of the public authority ensuring that the rules will not be modified ex-post. The unavoidable renegotiations of some elements of the contract, during its long life, make this commitment quite difficult to believe.
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Fayard, A., Meunier, D. & Quinet, E. Motorway Provision and Management in France: Analyses and Policy Issues. Netw Spat Econ 12, 299–319 (2012). https://doi.org/10.1007/s11067-009-9122-y
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DOI: https://doi.org/10.1007/s11067-009-9122-y