David R. Henderson  

Sell the Streets?

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In 2004, the Chicago Skyway was leased to a private company for 99 years for more than $1.8 billion. The company has the right to toll and concession revenue and the responsibility to maintain the road. In 2006, the same company purchased the right to maintain, operate, and collect tolls on the Indiana Toll Road for 75 years for $3.8 billion. Soon after acquiring these roads, the company introduced electronic tolling on them. Could the government have done this? Of course. But government lacks the profit-maximizing incentives that spur businesses to innovate to better serve consumers, so innovation and responsive customer service by government are much less likely.

This is from the latest Econlib article, "Sell the Streets," by Suffolk University economist Benjamin Powell. In the article, Ben lays out why for-profit toll roads work so much better than the socialist commons and even discusses how you can have privately owned streets where tolls are infeasible.

Sometimes strong advocates of the free market are ridiculed for bothering to talk about such issues when, the ridiculers allege, we have so much more important issues to discuss. But talk to Americans about their biggest daily upsets and traffic congestion is generally high on the list. Powell proposes a solution that actually would solve the problem.

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COMMENTS (10 to date)
david writes:

Some potential issues:

1) Monopoly pricing seems inevitable - there is, after all, only one Chicago Skyway. The vast majority of roads do not seem like close substitutes. Any suggestions?

2) Collecting tolls in invariably expensive (think about it - toll booths slow down traffic. Toll gantries involve putting expensive electronics in midair in all kinds of weather. What other options are there?). This source says "up to a third of revenues". This doesn't seem, well, efficient.

3) How do we communicate accurate price data to consumers? We can't rely on the toll companies to do this; its systematic incentives are for travelers to underestimate tolls where possible. Finding a cheapest route given known prices is already a difficult problem. Throw in variable pricing, dynamic pricing according to traffic, varying traffic rules... we must surely be expecting godlike consumers!

Neal W. writes:

My litmus test for being a real libertarian is twofold:

(1) No central banking

(2) Privatize roads

bjk writes:

Unless every car is hooked up with EZPass, tolls kill. Mass Pike tolls kill about 8 people per year as their digging into the cup holder for change. Collecting taxes should not be potentially fatal.

cputter writes:

Walter Block recently wrote a book on the same topic:


To David:

1.) Privatize the vast majority of roads.

2.) Don't worry, those evil capitalist strive to make it as easy as possible for you to give them your money, and as cheap as possible for them to do so. (http://en.wikipedia.org/wiki/1-Click)

3.) "How do we communicate accurate price data to consumers?" By 'we' I'll assume you mean the competing road owners. I'm quite sure they'll come up with competitive pricing structure just like the telecoms had to. How about:
- fixed monthly rates?
- paying for distance/time on their roads instead of just distance.
- GPS software already informs you of upcoming gridlocks with real time data. I'm quite sure they'd gladly let road owners inform you of current prices on their roads. For a small fee of course.

I'd much rather have private companies fighting over new ways of taking my money from me than have the government continue with their tried and tested methods that have served them so well over millennia.

AB writes:

Reason TV has a video out on the private toll road in Los Angelas. The public roads around it appear to be ok if one is looking for a direct route, but the private toll lanes cut commuting time by adjusting price according to congestion (supply and demand). Monopoly pricing is more controlled because people still have the option of taking the public road (competition). Also, I'm from the Southeast Chicago and Northwest Indiana area. There are plenty of ways around using the Skyway, but they've all been clogged over the last few years from construction.

If every road is privatized (at least in my opinion) price regulations should probably be imposed so as to control monopolistic pricing that would be caused by the various natural monopolies enjoying little or no competition. This of course could get very complicated as many regulatory systems turn out to be, and would most likely never happen.

My current thought on the matter is that if more states were to offer contracts such as this one it could help states close deficits that seem to be running rampant throughout the country.

Brad Warbiany writes:


Unless every car is hooked up with EZPass, tolls kill. Mass Pike tolls kill about 8 people per year as their digging into the cup holder for change. Collecting taxes should not be potentially fatal.

Lazarus Long (c/o Robert Heinlein),

Be wary of strong drink. It can make you shoot at tax collectors---and miss.

I see your point... Collecting taxes shouldn't be potentially fatal for the payer, but I suspect that if you tell an IRS agent to go F himself, it might get there.

The world might be a better place if tax collection was a little more dangerous for the collector, though.

Floccina writes:

As far as I know local road were always publicly owned (like water ways air and ground water) even before government started to build and maintain them and so I am OK with government managing and maintaining them. On the other hand I heard (on PBS I think) that Benjamin Franklin got the businessmen of Philadelphia together to pave and light the streets of Philadelphia. Wouldn't the businesses on the streets pay to have them paved and/or make long term contracts with the owners to prevent pricing from getting out of hand?

indregard writes:

Bah. Norwegian toll roads have converted to electronic tolling, all done by the state. The collection of payments remains in private hands (because competition on this simple task is good for customers), but the collection companies actually never made any effort to convert the roads to electronic tolling. Only the state had the incentive because it meant the coordination of all the different toll road systems into one.

Justin Bowen writes:

I wish I could find the paper editions of the South Bend Tribune in which the letters of the locals were printed. The letters from the locals complaining about deal before and after it was made were priceless. While some of the letter-writers had some valid complaints (the buyers were slow to make necessary upgrades and the quality of the concession areas was poor) most were simply concerned about the state's ability to control what was at that point a poor stretch of road.

El Presidente writes:


But talk to Americans about their biggest daily upsets and traffic congestion is generally high on the list. Powell proposes a solution that actually would solve the problem.

Implementing tolls is closing the barn door after the horses are out.

In Los Angeles, to use Mr. Powell's selected example, traffic is a result of inefficient location of land uses and dependence on the automobile for personal transportation. The LA Basin was developed in a haphazard fashion using rail as a loss-leader for residential development. Both rail and residential development were financed by the exact same interests. Our present freeway system is built almost entirely on or along the original rail right-of-way. When the inventory of homes was cleared, the railroads demanded public subsidy for a while and then were killed (a la Roger Rabbit; no joke, it's true) in exchange for real consideration in a deal between the RR operators and the manufacturers of buses and tires. In came freeways and the personal automobile and out went rail. The profit was extracted from the land development and the negative externatility of long travel times and distances was set in stone as rail oligopolies passed the baton to automotive oligopolies in exchange for ownership stakes.

Knowing how the traffic problems were created suggests a different solution. Powell seems to define the problem as: some people would rather pay than wait, but they are not allowed to do so. I suggest that an economist should propose a different problem statement: the inefficient movement of goods and people imposes higher real costs on exchange. There are other ways, better ways, to improve efficiency in transportation and they start with more efficient land use. That means constraining the ability of developers to engage in urban sprawl and leap-frog development that increases demand for inefficient transportation infrastructure. I'll admit that tolls might help to reorganize land use through market forces, but in Los Angeles they would do it on the backs of those least able to pay since those who earn lower wages typically travel a greater distance to work in order to find a balance between their wage and their rent. When you're serious about constraining land use, I'll consider tolls as an important component. Until then, this is libertarianism gone wild. Might be a good DVD, but it's bad policy for Los Angeles, and probably for other areas as well.

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