Public Policy

Privatization of Roads

On Gary Becker and Richard Posner’s blog, there is a spirited debate regarding whether or not we should privatize roads in the United States.  The two focus on Indiana’s recent decision to sell the rights to collect tolls on the Indiana toll road to a Spanish-Australian consortium for $3.85 billion.  The Pittsburgh Post-Gazette reports in a recent article that “Indiana drivers and interstate truckers were almost uniformly against what the state has done.”

Some points made by Gary Becker:

  • “A very important part of this argument is that technological progress is faster with private monopolies than with public monopolies.”
  • “Due to economies of scale, it may not be efficient, for example, to have another highway built across Indiana to compete against the Indiana toll road”
  • Becker notes that a state government’s receive lump sum payments from private firms in exchange for the right to collect tolls on the road.  He does not, however, note that since most politicians are only in office for a limited time, the politicians will often go on a spending spree instead of smoothing spending patterns over many years.  This is likely not in the public interest.

Posner responds:

  • “Private companies are more efficient than public ones, at least in the limited sense of economizing on costs.”  Posner does note that often this can lead private monopolies to reduce maintenence on roads.
  • Posner, like Becker, worry that the private monopoly will set tolls at monopoly rates.  “Drivers who do not have good alternatives to using the Indiana Toll Road can be made to pay tolls that exceed wear and tear, congestion effects, social costs of pollution, and other costs of the road, engendering inefficient substitutions by drivers unwilling to pay those tolls.” Posner does note that the private company cannot raise tolls until 2010, so this may be less of a concern in the Indiana case.

Living in Southern California, I believe that charging tolls on freeways will 1) reduce congestion, 2) decrease smog and 3) make cities denser.  The public outcry would likely be great, but in the long run tolls would be good for the area.  Should the tolls be administered by public or private monopolies?  Some of the pros and cons are listed above, but as always, your comments are appreciated.