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II. HIGHWAY CONSTRUCTION COSTS UNDER GOVERNMENT PROVISION

The cost of building highways varies considerably according to real property acquisition costs, terrain, degree of urbanization, roadway width, pavement and base thickness, and any special safety or environmental features required. On the extreme end of the spectrum, Boston is home to the most expensive road in United States history, which had an extraordinary cost of over $1 billion per mile (Simon [NPR], 1996). Paradoxically, another New England road was criticized as "wasteful" because it cost $19 million per mile (Frandsen, 1996), a pittance by comparison.

Elevated multi-lane highways through cities can be costly because of the displacement of current infrastructure. For example, recent costs in the New York City area have been $333 million per mile (Wieman, 1996). However, these high costs are not representative of other major cities. Even with considerable displacement, the costs were only half of that amount in the Los Angeles area 710 freeway extension (Moe, 1994), and only $127 million per mile for Los Angeles' Century Freeway, which is still criticized as having been too costly (Smith, 1993), even though it was relatively cheap in comparison to other projects. Fixing inter-city freeways in central Orange County, California cost $17.7 million per mile (Mott, 1994). Elsewhere in Los Angeles, costs for elevated highways were $20 million per mile, car pool lanes were $2.5 million per mile, and car pool lanes with tolling systems ranged from $30 million to $50 million per mile (Poole, 1994).

Rural and even some suburban highway construction costs far less than complex urban highways in major cities, particularly since there is little infrastructure displacement and there are typically fewer traffic lanes. Most interstate highways in the United States cost just over $1 million per mile to build (Grossman, 1996). In 1996 dollars, the Federal Highway Administration has calculated the "weighted rural and urban combined" costs per mile of interstate highway to be $20.6 million.(9) Other highway construction normally ranges from $1 million to $5 million per mile, but in mountainous regions, like West Virginia, the costs can be as high as $15 million per mile (Brogan, 1997). The costs per highway mile in the expanding Los Angeles metropolitan area for four Ventura County projects were $1.7 million, $2.1 million, $2.4 million, and $2.9 million respectively (Green, 1996). Since most highways are built by direct government provision, it is difficult to determine what their market costs would be. Yet these figures might at least serve as reasonable estimates of expected construction costs under semi-privatization.

The construction of Costanera Norte would require some condemnations, but they are expected to be relatively unproblematic.(10) The cost of the thirty-year concession, including the Avenida Kennedy acquisition, is estimated to be about $13 million per mile, which is not prima facie unreasonable given the foregoing figures from the United States and the considerable urban displacement it will entail. However, one must also take into account other factors before making any definitive judgment. Labor costs and labor productivity are not the same in Chile and the United States, and Costanera Norte has, for the most part, fewer lanes than a typical big city highway in America. Thus, intuition might suggest that the cost of the project is high, perhaps due to inefficiency. Scholars have recognized that highways can enhance economic growth and even generate positive externalities (Urban, 1996). If the project could in fact be produced efficiently, then there might be reasons to believe Costanera Norte would provide net benefits that serve the public interest by both alleviating negative externalities (11) and spurring economic development.(12) A transparent concession bidding scheme should increase competition and improve production efficiencies, ceteris paribus. However, as in the case of Costanera Norte, perceived net social benefits from concession schemes will be tapered when political process incentives and institutions are endogenized in the analysis.

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