Optimal Provision of Infrastructure Using Public-Private Partnership Contracts

This paper deals with the optimal provision of infrastructure by means of public-private partnership contracts. In the economic literature infrastructure is characterized as a large, indivisible and non-rival capital good that produces services for its users. Users can be both consumers and producers. Consumers may derive utility from infrastructure, either indirectly, because it facilitates the use of some particular private good, or directly, because it is available for this facility. Examples are roads that facilitate the use of private cars, or computer systems facilitating the use of personal computers. Producers may use infrastructure as one of their production factors. The non-rivalness or nonexcludability of the infrastructure and the large costs to produce and maintain the infrastructure causes it to be a public good. On the other hand, infrastructure also possesses characteristics of a private commodity because it facilitates of the use of a complementary private commodity. Modern information-technological developments open new possibilities to reveal the need of individual users for a speci ̄c public infrastructure, by monitoring the private use they make of it. Consequently, a large part of the public ̄nancing of infrastructure can be privatised. That forms the base for public private partnerships to establish and maintain infrastructure. In this paper we discuss the design of an operational system to ̄nance the costs of infrastructure. It will be shown that the system basically can result in an economically e±cient level of infrastructure. The basic idea is that use of infrastructure is constrained by the availability of the infrastructure being provided. Therefore users who are hampered by too small a provision of the infrastructure are willing to pay for the use of infrastructure.