Skip Navigation Planning & Markets
Subscribe Submission Requirements Editorial Board Archive Links Search Home



V. HOW PRIVATE SHOULD CHILEAN HIGHWAYS BE?

There are basically three public policies under which highways may be constructed: direct government provision, semi-privatization, and plenary privatization. Direct provision policies have left much to be desired. As a result, there has been worldwide interest in semi-privatization schemes such as highway concession projects. If the Chilean concession bidding process were as transparent as Garín claims it is,(36) semi-privatization would be better than direct provision as it would reduce public choice and knowledge problems to some extent. Moreover, it might come close to producing efficient solutions (the probability of which would be hindered to the extent that public choice and knowledge problems affect the process).

For instance, efficiency gains could come through correct pricing. Taxpayer financed public works create an implicit transfer of wealth to landowners who benefit from the positive externalities of those works (to the extent that the real property taxes they pay are less than the benefits provided by them). Thus, private firms might finance highways by charging users the marginal costs and collecting rents from landowners who benefit from the positive externalities to pay for the fixed costs. However, as evident in the case of Costanera Norte, semi-privatization schemes are no panacea.

As it stands, informed support for Costanera Norte has mainly come from the government and Transroute. In a 1997 interview, Garín said that Costanera Norte is not a political issue for most people, with only one ministry and a couple mayors complaining. He thought concerns about demand, profitability, and various risks were simply unfounded. Garín maintained a practical outlook, arguing that supposed parking, ventilation, and environmental problems would not stall the project indefinitely. However, those who had to risk their resources did not agree, and Garín ended up being wrong.(37) Montelimard was optimistic about the project in 1997. Transroute has participated in many highway concessions around the world, some of the most impressive being in Australia. This worldwide knowledge, especially in dealing with government and special interest groups, would give them some competitive advantage.(38) Nonetheless, even his firm could not enter a valid bid for Costanera Norte.

Like semi-privatization, plenary privatization would be able to take full advantage of laudable market-based policies like congestion pricing to enhance efficiency. Moreover, it might be a better way to alleviate policy inefficiency and negative externalities in the production of highways. Under plenary privatization, all the elements of production would be transferred to the private sector, including the real property and business risks (via private insurance perhaps). Then tolls would serve their purpose optimally, unlike stand-alone legislation mandating congestion amelioration. Given the foregoing problems associated with semi-privatization, the optimal means of private provision effective and efficient in a social sense might be found in plenary privatization of the provision of transportation infrastructure. This would entail road owners buying (rather than condemning) all required land and insuring against all the risks (perhaps jointly with other private firms).

Privately owned and operated roads have clear efficiency advantages over public roads. As with railroads, which are able to more effectively optimize inputs because they own all their productive assets and thus internalize all costs efficiently (Gómez-Ibañez 1998, p.107), plenary privatization of roads would produce a similar desirable effect. As a step in the right direction, Bryan Caplan proposes a dual security system where people are given common stock in the road and permitted to drive on it (both rights being salable). He claims this would eliminate deadweight losses and enhance efficiency (Caplan, 1996). Furthermore, Sauter argues that congestion pricing will function best when roads are completely privatized and divorced from the political process (Sauter 1997, pp.118, 69).

Recent theoretical work has been done on allodial policy which might pave the way for policies of plenary privatization, where government would have no role in highway provision. Allodialism was a once well-known legal real property system that is now pertinent to modern discussions of privatization issues (Cobin 1997 and 1999a). With allodial policy, land and other real property (including highways) would not regulated or taxed, and could not be condemned by government for public use except, perhaps, for punishment of a crime. Succinctly, land and improved real property would be held absolutely. Instead of government planning, market-based regulation, exchange, and contracting would be relied on to allocate resources, produce transportation infrastructure, and regulate land uses. There would not be political barriers to enter the market to produce highways or other infrastructure. Rather than government regulation, contractual arrangements would be made for the use and possession of real property.(39)

Although converting to allodial policy would be dramatic and costly, it is attractive because it would provide a means to eliminate all public choice and knowledge problems. For instance, rent seeking would be eliminated since, if all real property were allodified, profiting from neighboring public works provision would be precluded since public works would simply not exist. (Further details about allodialism are included in the appendix.) As Table 1 indicates, all of the problems of semi-privatization schemes, exemplified in the Costanera Norte case, would be avoided under allodial policy.

Table 1: Problems that arise when privatization is not plenary

Potential problems
Direct Provision Semi-Privatization Allodial Policy
Technical flaws likely to slow process and augment costs No Yes No
Doubtful cost estimates produced by regulators Yes Yes No
Legal hassles and political uncertainties Yes Yes No
Completion time problems Yes Maybe No
End-of-term maintenance problems No Yes No
Environmentalist clashes in the political process Yes Yes No
Strategic use of policy by vote-seeking politicians Yes Yes No
Rent or privilege seeking problems Yes Yes No
Problems with financial guarantees in the bidding process No Yes No
Social losses: knowledge problems in planning/forecasting No Yes No
Efficiency problems Yes Yes No

page 15

IndexContinue

USC Seal


Main Page | Subscribe | Submission Requirements | Editorial Board | Archive | Links

PLANNING & MARKETS
http://www-pam.usc.edu/
ISSN 1548-6036

Copyright 1999-2000
University of Southern California
Los Angeles, California 90089-0626
USA