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Optimimun Public-Private Contracts with Applications to Toll Roads

Geoffrey Hyman
Integrated Transport & Economic Appraisal Division UK Department for Transport

May 19, 2005 at  9:30 AM
Zames Seminar Room - MC437

This talk examines how contracts can be specified which reconcile social objectives and private sector objectives. The focus is on the role of incentives which modify the prices that are charged for access to a high quality sub-network (toll roads), in an environment where the market for network users is both elastic and diverse. The analysis proceeds from the specification of a Principle-Agent problem and obtains the resulting Nash Equilibrium levels of prices and subsidies. It is demonstrated that market diversity has a strong impact on the Nash subsidy levels and on the value for money obtained by the contract. The talk concludes with a brief discussion of some broader system modeling issues, which may of relevance for non-transport applications.