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Title: $Role of the Private Sector in the Management of Highways: A Primer on Public-Private Partnerships
Abstract: A number of states have used public-private partnerships (PPPs), usually funded at least partially by tolls, to manage highway or bridge projects. Whether to make more use of PPPs has been the subject of considerable debate. If PPPs are to improve social welfare through their management of highway and bridge projects, how the government structures each contract with a private partner is an important consideration. To increase social welfare, PPP contracts need to achieve a balance between the price of tolls, the share of costs borne by taxpayers, and the impact of pricing on the rest of the highway network. Tolls should be high enough to limit congestion but low enough to attract enough traffic to use the additional highway capacity and limit congestion on parallel roads and highways. State departments of transportation should use contracts that pass along some risk to the private partner but include arrangements to limit that risk, such as variable-term contracts and minimum revenue guarantees, in order to reduce financing costs. It is also important that highway departments clearly communicate project goals and tradeoffs involved to voters and their elected representatives.