The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty

Arghya Ghosh and Kieron Meagher

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: Infrastructure, as it impacts transport costs, is crucial in determining equilibrium outcomes in spatial competition; however, infrastructure investment is typically exogenous. Our political economy analysis of infrastructure choice is based upon consumer preferences derived from Salop’s circular city model. In this setting, infrastructure investment has two effects: it directly lowers costs to consumers and indirectly affects market power. We show how political support for infrastructure investments depends crucially on the details of the market. Competition boosts popular support for infrastructure — often excessively so — while collusion leads to underinvestment. The uncertainty produced by infrastructure induced entry leads to traps and thresholds.

JEL-codes: D43 H4 L13 (search for similar items in EconPapers)
Pages: 23 Pages
Date: 2011-10
New Economics Papers: this item is included in nep-cis, nep-geo, nep-pol and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2011-556

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