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Old October 9th, 2012, 12:34 AM   #1
VECTROTALENZIS
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Can a highway become profitable?

As the title says, can a highway/expressway become profitable?
Toll-booths?
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Old October 9th, 2012, 12:55 AM   #2
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I guess they need decades to payoff the initial construction cost, plus large sums are needed regularily for maintenance. Off course private companies who have motorways in concession make profits, but motorways are build mostly with public (state and sometimes EU) funds.
Large shares of those companies are owned by the state or sometimes by regions.
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Old October 9th, 2012, 10:45 AM   #3
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Every road in the Netherlands is very profitable if you take all taxes motorists pay into account. The 2012 budget for national roads is € 2.7 billion and other roads is € 1 billion. The amount of taxes paid by motorists (fuel duty, car purchase tax, car ownership tax) you'll get to about € 12 billion.
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Old October 9th, 2012, 11:24 AM   #4
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Quote:
Originally Posted by ChrisZwolle
Every road in the Netherlands is very profitable if you take all taxes motorists pay into account. The 2012 budget for national roads is € 2.7 billion and other roads is € 1 billion. The amount of taxes paid by motorists (fuel duty, car purchase tax, car ownership tax) you'll get to about € 12 billion.
Yes, but tax revenues are the same if either you build new roads or not. Are your taxes excises on fuel or possession taxes for motor vehicles?
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In real life, electronic toll collection was first introduced in Bergen, Norway in 1986, and well into the 21th century many countries still struggle to implement it.
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Old October 9th, 2012, 11:49 AM   #5
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There are three taxes in the Netherlands:

* fuel tax, which is an excise duty. VAT is also levied on this (tax + tax)
* purchase tax (Dutch: BPM) which you have to pay if you buy a new vehicle. Can be € 10.000 easily
* monthly road tax (Dutch: MRB). Ranges from about € 500 a year for a petrol car to over € 1.200 per year for a diesel car.
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Old October 9th, 2012, 12:36 PM   #6
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Most EU countries have such taxes and in almost every case there is a profit for a state if you look in such way.

However if you looking at particular road, answer is not so obvius. Often tolls are not enough to cover loans payment and maintenance (like in Croatia). But in some cases motorways can be profitable, like Frejus and Mont Blanc tunnels.
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Old October 9th, 2012, 12:45 PM   #7
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You are all forgetting the most important fact. Roads and infrastructure allow for economic growth. It improves mobility, makes trade cheaper and faster, lowers transaction costs, lowers costs of production, allows acces to broader labour market, allows access to education and leisure, improves turism, etc etc.
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Old October 9th, 2012, 05:04 PM   #8
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if that, tolls should be abolished. Is motorway a service or just wealthier standard infrastructure?
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Old October 9th, 2012, 05:40 PM   #9
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It depends. Sometimes the tolls could be the more effectvie solution.

In general I my oppinion is that infrastructure is a public good (many economists would disagree), but not in a pure sense and not all of it. It is public good in a sense that welfare created by its existence affects the whole society and the welfare is experienced by the whole society irrespective of who is consuming the infrastructure. Its however quite uneasy to quantify the effects of the infrastructure on the total welfare.

Private tolling can have detrimental effect on this welfare creation = some people may choose they won't consume it as the costs are too high and their incomes too low. (In fact private ownership of infrastructures creates welfare inefficiencies everywhere. However, it also creates efficiencies compared to the public sector). Its just choosing the more efficient variant from two not perfect variants.

I.e. the best posibilitiy would be having a governmental non profit organisation that would take care about the infrastructure (roads, rail, water, gas, any pipes, internet, mobile technology, etc etc). Since such a organisation would work with the economies of scale and scope it would have very low average costs , however, such organisation would face no competition and thus no incentives for improvement . The infrastructure would be financed through taxes allowing for production of very high externalities and welfare creation , but neverthless also wasting and corruption.

Thus the decission between tolling or public financing hangs on the mix of above stated conditions that should produce some optimal solution. Of course we can't forget that there are also private interests on whether the infrastructure should be private or public. Is nothing like a good old private monopoly. It combines the advantages of low costs, no competition, no wasting => Very high profits , however the welfare effect is not a concern .
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Old October 9th, 2012, 05:50 PM   #10
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The main advantage of toll roads is that it can be operated independent of the government budget. Usually that means these projects can be realized much faster than a government funded project. The downside is that the end product is usually more expensive for the user. Tax financed roads are much cheaper for the user on a per kilometer basis. Also; toll roads do not necessarily means taxes are lower, though France may be an exception (they don't have a separate road tax like many other countries).

Besides that, tolls are only an option for a marginal amount of the road network. You cannot toll rural roads unless it has a huge time advantage. Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.
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Old October 9th, 2012, 06:12 PM   #11
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Quote:
Originally Posted by ChrisZwolle View Post
Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.
Tolling a bridge or a tunnel, that is not operating at the peak of its capacity, and having no alternative may result in huge welfare losses, although the whole business might be quite profitable.
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Old October 9th, 2012, 06:19 PM   #12
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Most toll roads in Spain are actually profitable. Toll revenue has been enough to pay construction costs and maintenance.
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Old October 9th, 2012, 06:20 PM   #13
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Political tolling is usually what reduces welfare the most. Like the unnecessary high tolls on the New York bridges and tunnels and congestion charges in London and Stockholm. These tolls reduces the discretionary income of commuters by thousands of euros / dollars annually.
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Old October 9th, 2012, 06:48 PM   #14
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Quote:
Originally Posted by Surel View Post
You are all forgetting the most important fact. Roads and infrastructure allow for economic growth. It improves mobility, makes trade cheaper and faster, lowers transaction costs, lowers costs of production, allows acces to broader labour market, allows access to education and leisure, improves turism, etc etc.
Typically, the infrastucture decisions are based on three main elements:

1) Cost
2) Benefit
3) Political priorities

It is rather a common way to calculate the B/C ratio to show one figure telling if the benefits exceed the cost. That calculation is rather volatile, because the costs are real but the benefits are speculative. One might create a model having an average price tag for deaths, time lost, noise, loss of cosiness, etc, but all these can be challenged. Minor changes to the weights may cause a major change to the result.

The impact of political priorities is not negligible. A project with the B/C ratio less than 1 may be started if the politicians see that 'necessary'.
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Old October 9th, 2012, 07:49 PM   #15
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Quote:
Originally Posted by ChrisZwolle
Besides that, tolls are only an option for a marginal amount of the road network. You cannot toll rural roads unless it has a huge time advantage. Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.
Well, but tolling roads with no alternatives is unethical because it limits the freedom of movement. There are no way to avoid the 30€+ toll between Courmayeur and Chamonix, so these towns very close together are pratically very distant with no commuting traffic between each other.
On the countrary you can drive from Milan to Brescia via normal road if you don't want to pay, while the motorway serves those who are in hurry and values times more important than money.
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In real life, electronic toll collection was first introduced in Bergen, Norway in 1986, and well into the 21th century many countries still struggle to implement it.
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Old October 9th, 2012, 08:06 PM   #16
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I think a network works best if either all routes are tolled or no routes are tolled at all. Otherwise you'll see people taking preference routes that may not be the best suited roads from a traffic engineering point of view. Such as people driving on two-lane roads or through villages instead of safer toll motorways.

But there is not a country in the world where every route (every mile driven) is tolled.
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Old October 9th, 2012, 09:33 PM   #17
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Quote:
Originally Posted by ChrisZwolle View Post
But there is not a country in the world where every route (every mile driven) is tolled.
For now, anyway. I can't find the article but I know we've discussed the proposed vignette-for-all-roads in Belgium.

(Off topic, but just for reference: what European countries have a Swiss-type freeway vignette?)
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Old October 9th, 2012, 09:37 PM   #18
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Well, I meant a toll system where you would be tolled per mile / kilometer, not a flat-fee vignette system with unlimited mileage. A vehicle miles tax has been proposed in the United States to replace the gas tax, but the idea doesn't seem to be gaining ground. It was nearly implemented in the Netherlands, but highly unpopular.

The major downside of these systems is the incredible operating cost (typically 20% of revenue), which only benefit companies like Kapsch who provide the transponders.

Switzerland and Slovakia have a GPS-based truck toll that could theoretically be implemented in other vehicles as well.
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Old October 9th, 2012, 10:39 PM   #19
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Per mile tolling is also creating welfare problems.

Basically any public systems which are aimed to be financed directly (per use), prohibit certain part of the population from their use, which creates efficiency and welfare problem. Unless the toll is proportionall to the income such systems won't be any improvements (i.e the price of the use would be discriminatory). Therefore it might make bit more sense to toll business use of the infrastructure, however not toll private use of the infrastructure.

It would be allright if you could toll a bridge in a folloving way. Imagine you have three income groups: High (above 100), Middle (20 - 100) and Low (less than 20). You build a bridge and you want to repay the cost by tolling. Imagine that the existence of the bridge allows for increase of the incomes by each income group by multiple of 1,1. Depending on the shares of high incomes and middle and low incomes you set the toll price.

If you set it higher than 2, the population with low income will never be able to use it, and will never experience the increase in incomes.

If you set it higher than 10, the population with middle income will never be able to use, and will not expereince the increase in incomes.

Thus too high toll can actually make the whole point of infrastructure worthless. The solution could be if you could discriminate and set the toll different to each income group.

I guess the taxes are much better tool for this than the tolling... Thus when you really care about the welfare you won't use tolling as a tool in transport infrastructure.

Tax financed infrastructure allows for much more projects to be undergone and allows for higher welfare increases.
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Old October 9th, 2012, 10:44 PM   #20
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Quote:
Originally Posted by MattiG View Post
Typically, the infrastucture decisions are based on three main elements:

1) Cost
2) Benefit
3) Political priorities

It is rather a common way to calculate the B/C ratio to show one figure telling if the benefits exceed the cost. That calculation is rather volatile, because the costs are real but the benefits are speculative. One might create a model having an average price tag for deaths, time lost, noise, loss of cosiness, etc, but all these can be challenged. Minor changes to the weights may cause a major change to the result.

The impact of political priorities is not negligible. A project with the B/C ratio less than 1 may be started if the politicians see that 'necessary'.
and

Quote:
Originally Posted by Surel View Post
Its however quite uneasy to quantify the effects of the infrastructure on the total welfare.
And thats one of the reasons why some economists think that direct paying for the infrastructure consumption (in terms of toll e.g.) are better. I don't agree with this, because they don't improve a thing. The calculation has to be done anyway. The only thing that happens is that mostly those projects are private and the government has to step in to bear the risks and pay when the calculations were off. Results in privatizing the profits and socializing the losses. No welfare improvement, only a redistribution.
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