Privatization: A New Transportation Paradigm

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Abstract
A new approach to the funding, management, and operation of transportation infrastructure is emerging. “Privatization” refers to several different ways in which private sector firms, usually under some form of government supervision, assume significant responsibility for these major systems. Although the traditional U.S. model of user taxes, trust funds, centralized resource allocation, and government ownership and operation has produced reasonably good transportation infrastructure, this approach carries with it incentives for suboptimal performance—such as allocating resources on political rather than economic-value grounds, encouraging congesation at peak hours, and skimping on maintenance. The privatization techniques offer the potential of institutionalizing a better set of incentives for cost-effective performance. This article explores the use of (1) contract management and operation, (2) long-term franchises and concessions, and (3) divestiture as privatization modes that can be applied to highways and airports.

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