When I explain public goods to students I explain 2 basic traits: Public goods are non-rival and non-excludable. Non-rival just means that if I consume the good it doesn't prevent you from consuming it. Think clean air. Non-excludable just means that the supplier of whatever it is we're talking about can't prevent you from consuming it once it is supplied. Think national defense. At this point I usually ask the class to think about the types of goods that local governments pay for that would fit the definition of public goods. Invariably, someone says roads.
But are roads really public goods? Sure they are usually publicly provided, but should they be? Usually, public funds are used to supply public goods because private firms can't profit from providing the good. If I can't prevent you from consuming national defense once it is supplied, what incentive do I have to provide it?
But roads are neither non-rival nor non-excludable--take a minute to figure out all those negatives. Let me say it this way. Roads are excludable and in some cases rival. Toll booths act to exclude drivers from certain sections of roads and as roads become more congested, my driving on a particular road may prohibit--or at least slow--your driving on the same road. So, if roads don't have any of the characteristics of a public good, why do we use public funds to supply them?
It looks like politicians are starting to ask the same questions. From the AP via the Columbus Dispatch:
Indiana officials hope to sign a lease this spring with a Spanish-Australian partnership that would operate [I-90] for a profit for the next 75 years.
The company would keep all toll revenue. In return, it would be responsible for maintenance, improvements and other operating costs, and would pay the state $3.85 billion up front - money that would go toward other road and bridge projects.
Privately operated toll roads are slowly catching on in the United States after decades of popularity in Europe and, more recently, South America, Australia and other nations. The roads are attractive to investors because they offer long-term, stable revenue from tolls.
Last year, Chicago became the first U.S. government entity to lease an existing tollway to private investors. The city turned over the 7.8-mile Chicago Skyway to the same Spanish-Australian consortium for 99 years in exchange for $1.83 billion.
By this fall, about 30 of the 5,244 miles of U.S. toll roads will be run by private operators - the Chicago Skyway, the Dulles Greenway in northern Virginia and the South Bay Expressway, expected to open this fall near San Diego, said Patrick Jones, executive director of the International Bridge, Tunnel and Turnpike Association.
Opponents worry that tolls could rise sharply or that road maintenance would suffer.
Tolls are already set to go up under an unrelated plan, jumping from $4.65 to $8 for cars this year, and more than doubling to $32 for big trucks by 2009. Under the privatization plan, however, people living in the seven counties that the highway traverses would be exempted from the toll hike and would be spared any increase for 10 years.
Indiana House Democrats also say it is bad public policy to sell off or lease a major public asset to a private venture, particularly a foreign one. They note that the venture could recoup its investment in 17 years, then make $21 billion in profits over the next 58 years.
"That is money that could go to our children, our grandchildren and our great-grandchildren," said House Minority Leader Patrick Bauer of South Bend.
Why would we want a private company to profit when the Indiana state government could? (sarc) Personally, I like the idea of private pay as you go roads. Of couse the roads will always be state-owned because only the state has the means to procure the land necessary to build roads--eminent domain. But once built, why shouldn't the roads be competitively priced? It could relieve congestion and provide incentives for more mass transportation. Both good ideas in my book.