Road investments and the trade-off between private and public funding

Abstract

This paper assesses the impacts tolls have on economic profitability. We show that Norway has a long and diversified tradition for financing road construction by means of tolls. 20–30 per cent of the total funds available for road funding consist of toll revenues. Despite this extensive use of tolls, there is a weak tradition for detailed studies of the economic effects from tolls. This implies that the net benefit of the projects may have been overestimated. In order to explore this in more detail, we have studied four tolled road projects. The paper provides an empirical assessment, by means of a transport model, of how to determine optimal funding in order to maximise net present value, given a set of financial and/or political constraints. The main finding of the paper is that tolling can have a significant impact on economic profitability and that these effects should be examined carefully as part of the basis for the investment decision. Keywords: tolls, road tolls, toll financing, appraisal, cost benefit analysis, economic profitability