Public and private roles in road infrastructure: an exploration of market failure, public instruments and government failure

Abstract

Starting with a 'greenfield' situation, we discuss reasons for market failure in road infrastructure provision. We show why it may not be optimal from a welfare perspective to leave road provision fully to the market and government intervention in this sector can improve welfare. Government intervention comes in different forms, such as financial intervention (taxation, subsidies), regulation (price, quality, environmental), and public provision of roads or road services. The analysis of the literature regarding government instruments allows us to establish a correspondence between different forms of market failure and instruments. Several case studies of particular road infrastructure projects are included to illustrate the use of government instruments.