Build-operate-transfer Schemes for Road Franchising with Road Deterioration and Maintenance Effects

Abstract

Private provision of public roads through build-operate-transfer (BOT)approaches is increasing around the world. By considering both socialwelfare gain and profitability, the BOT problem is to determine theoptimal BOT contract which can be viewed as a combination of threeprimary variables of concession period, road capacity and toll charge.This paper models the BOT problem as the isoperimetric problem incalculus of variations to maximize the social welfare with a profitconstraint. The model explicitly incorporates the effect of roaddeterioration and maintenance over the years, which is assumed to dependon the traffic loads, road capacity and road natural deterioration. Wefind that an optimal pricing policy requires toll increase over calendartime to reduce traffic load due to time-increasing and load-increasingmaintenance cost. If, however, the marginal user damage on road isindependent of time, then the optimal toll charge is free from theeffect of road natural deterioration and thus time-invariant. We alsodiscuss how to reach an optimal contract through government regulationsand investigate the effects of economic growth on the solutionproperties of the problem.