1. 1 FINAL CONFERENCE Revenue Use from Transport Pricing 29th – 30th November 2005 Hotel Métropole, BRUSSELS From Theory to Practice by André de Palma adpC

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4. 4 Blog: Gary Becker-Posner & CBA The decision to abandon or not cannot be left to the market. It could be if federal, state, and local government could credibly commit not to provide any financial assistance to the city’s residents, businesses, and other institutions in the event of another disaster--but government could not make such a commitment. Or if government could require the residents, businesses, etc. to buy insurance that would cover the complete costs of such a disaster. But again it could not; insurance in such an amount, to cover so uncertain a set of contingencies, could not be bought in the private market.

5. 5 The specificities of infrastructures 1.Infrastructures in our society: transport, telecommunication, electricity, energy & water. 2.Infrastructure are expensive public goods usually provided by the Regions / the State But several exceptions exist (Europe, South-East Asia, South America) Case for privatization : need for financing

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7. 7 The specificities of infrastructures 3.Unique specificities Mobility is a basic right (positive freedom, Rawls) Externalities (congestion, pollution, accident and noise)  a justification for State intervention (Pigou and pricing) Time horizon involved (e.g. concession for the Channel tunnel: 55 years; for the tunnel du Mont Blanc: 70 years, etc. )  (im) possibility to plan over such periods of time Almost as a consequence …. Risk which could (not) be diversified (uncertainty)  justification for State intervention: who bear the risk?

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9. 9 Sources of randomness (adapted from W. Rothengatter) Risky and uncertain demand forecast (Keynes) Production costs (construction, maintenance, etc.): external risk and internal risk (execution time and human resources for project management). Industry structure and regulation Macro-economic context (including Kondratiev cycles), regional uncertainty Political changes (re-contract) or political instability (Im)perfect capital market (Friedman, Stiglitz & Wise)

10. 10 A very controversial background 1.Large infrastructures: awkward investment for private sector Huge time periods No return for a long period High level of risk and (no) diversification

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13. 13 A very controversial background 2.Level of intervention (Hayek) NONE  ------------------------  ”FULL” (Keynes) Partial (PPP)

14. 14 Involvement of public sector The Pubic sector … –Finance the infrastructure or not (then financed by private sector) –Covers the operations costs or not (then covered by the private sector)  4 cases

15. 15 Involvement of public sector (adapted from Nijkmap & Rienstra) Financing PrivatePublic OperationPrivateI : No public intervention II: Gov. pays for the fixed cost OperationPublicIII: Private S. finance the infrastructure IV. Gov. control both

16. 16 Involvement of public sector The private sector should: Bear some “real” risk Be able to levy a toll to get some revenue Should provide the data as required.

17. 17 Different agents & different objectives Financial approach (Private) –Private firm (Profit) –Government (welfare, equity, regional level....) Cost-benefit analysis (Public) – Range of externalities (Pigou & Vickrey) –« Equity » (Rawls)

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19. 19 A very controversial background 3.Ways to finance investment projects Equity  -------------------------------------------------------  Debt Theory of Coase, Williason on irreversible (or nonreployable) investments

20. 20 A controversial background 1.Theory: does optimal pricing & investment result in surplus, self-financing (break-even), or deficit? (a)Does the cost recovery theorem hold? (b)How robust are the theoretical finding on self- financing? 2.Empirical estimates: combined estimation of parameters, with calibration (cost, elasticity of substitution, VOT, VOR,…).

21. 21 Two different types of analysis 1. Descriptive analysis: determinant of revenue, identify robust key explanatory factors, sensitivity analysis 2.Predictive analysis: predict future revenues, flows, (etc.) for BAU and for different policies. KEY 1: test for endogeneity - exple: forecast in PT and VOT KEY 2: test for IIA, etc. KEY 3: right level of aggregation? See next slide.

22. 22  In1  In2  In3  In4 Out1  Out2  Out3  Out4  Ring 1 Ring 2 Ring 3 Ring 4 Road network Radius 16 km.

23. 23 Distributional impacts of comprehensive tolls

24. 24 Network Antwerp-city Existing tunnel KENNEDY New tunnel-bridge OOSTERWEEL Motorway RIVER Introduction | Transport Module | Financial Report Module | Infrastructure Fund | Investment Module | Output | Case Study

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26. 26 Welfare measures: examples

27. 27 Concluding remarks (1) Do not hide the underlying controversy Use more heavily econometrics Interdisciplinary approach : engineering, computer science, accounting, economics,.. Develop a collaborative research (platform) to develop a tool (open sources, etc.) to perform high quality CBA

28. 28 Concluding remarks (2) Experimental economics: to evaluate new transport systems, measure willingness to pay, measure the equity versus efficiency trade-off

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