A study analyses the efficiency of motorway management

One of the most significant results is that there is no sign of any benefit from an improvement in cost efficiency from a private motorway management compared to its public counterpart. This is analysed in two ways: comparing public and private highway concessionaires and analysing the years following privatization processes. In the former, there is no difference in management performance between public and private companies over the analysed period. However, the study shows how during the years following privatization, there is no improvement in the efficiency of motorways. “Regarding the current situation of the end of concessions and rescue of private highways, we do not find any evidence in favour of either public or private management,” says Jordi Rosell, one of the authors of the study. What they did find is that concessionaires that failed show clearly low levels of structural efficiency. “This shows that it is not public or private management of highways that improves efficiency, but selecting and building highways with proper levels of demand”, notes Jordi Rosell.

Another result shows that those motorways promoted by regional and local governments are more efficient than those promoted by the central Government. Highways that are promoted by regional and local governments show between 2 and 4 additional efficiency points, which translates into tens of thousands of euros per year. “This occurs because regional governments are more capable of selecting viable projects and avoid white elephants, that is, those projects with a low social value”, notes Daniel Albalate, lecturer of Economics at the UB and also author of the study. For instance, in those motorways that are promoted by autonomic and local governments, the building phase is more expensive -mainly because these projects have to face geographical difficulties- but in spite of that, future revenues per kilometre double here compared to the motorways that are promoted by the State. According to Albalate, “we have to pay more attention to the economic and financial evaluation of highway construction projects rather than subsequent decisions on public or private management,” he concludes.

Other findings include cost reductions of around 0.4% per year, which shows that, despite the introduction of technological innovation such as automatic payment machines, this sector shows low productivity gains. Another conclusion states that economies of density are more important than economies of scale: increasing traffic volume is more relevant than expanding the highway network. The study includes all highway agents in Spain between 1988 (the year when all the information for every highway agent is provided) and 2015. There are only some agents excluded in the Basque Country due to a lack of information. At the beginning, between eight and ten agents are considered, while at the end of the period the amount of highway agents increases up to 31. The study considers annual variable for each agent such as total costs, maintenance costs and capital costs, as well as traffic, network length and number of accidents, among others.

The study uses stochastic frontier analysis to estimate the efficiency of costs, and distinguishes between two types of efficiency: persistent efficiency, related to the construction of projects and sunk costs, and transient efficiency, more closely related to the efficiency of management.

Article reference:

Daniel Albalate, Jordi Rosell. “On the efficiency of toll motorway companies in Spain”, Research in Transportation Economics, September del 2019. Doi: https://doi.org/10.1016/j.retrec.2019.100747