Network Development under a Strict Self-Financing Constraint

18 Pages Posted: 9 Nov 2008

See all articles by André de Palma

André de Palma

Ecole Normale Superieure de Cachan (ENS)

Stef Proost

KU Leuven - Department of Economics

Saskia Van Der Loo

Katholieke Universiteit Leuven. KUL. Faculty of Business and Economics

Date Written: October 1, 2008

Abstract

This paper offers a stylized model in which an agency is in charge of investing in road capacity and maintain it but cannot use the capital market so that the only sources of funds are the toll revenues. We call this the strict self-financing constraint in opposition to the traditional self financing constraint where implicitly 100% of the investment needs can be financed by loans. Two stylised problems are analysed: the one link problem and the problem of two parallel links with one link untolled. The numerical illustrations show the cost of the strict self-financing constraint as a function of the importance of the initial infrastructure stock, the rate of growth of demand, the price elasticity of demand and the flexibility in the pricing instruments.

Keywords: Cost-benefit analysis, road tolling, self-financing, infrastructure investments, congestion, bottleneck model

JEL Classification: R42, L91, R40

Suggested Citation

Palma, André de and Proost, Stef V. and Van Der Loo, Saskia, Network Development under a Strict Self-Financing Constraint (October 1, 2008). Available at SSRN: https://ssrn.com/abstract=1296561 or http://dx.doi.org/10.2139/ssrn.1296561

André de Palma (Contact Author)

Ecole Normale Superieure de Cachan (ENS) ( email )

61 avenue du président Wilson
Cachan, Paris 94235
France

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

Saskia Van Der Loo

Katholieke Universiteit Leuven. KUL. Faculty of Business and Economics ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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