Optimal Provision of Infrastructure using Public-Private Partnership Contracts

Gerard van der Laan, Pieter Ruys and Adolphus Talman

No 01-011/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper deals with the optimal provision of infrastructure by means of public-private partnership contracts. Inthe economic literature infrastructure is characterized as a large, indivisible and non-rival capital good thatproduces services for its users. The non-rivalness or nonexcludability of the infrastructure and the large costs ofinfrastructure causes it to be a public good. On the other hand, infrastructure possesses characteristics of a privatecommodity because it facilitates of the use of a complementary private commodity. Modern monitoring techniquesopen new possibilities to reveal the need of individual users for infrastructure. Consequently, a large part of thepublic financing of infrastructure can be privatised. In this paper we discuss the design of an operational system tofinance the costs of infrastructure. It will be shown that the system basically can result in an economically efficientlevel of infrastructure. The basic idea is that use of infrastructure is constrained by the availability of theinfrastructure being provided. Therefore users who are hampered by too small a provision of the infrastructure arewilling to pay for the use of infrastructure.

Date: 2001-01-26
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