Chapter 13: Infrastructure Policy

Policy toward transport infrastructure can be divided into two main parts: investment in new infrastructure; and the management, regulation, and allocation between users of existing infrastructure. Although early transport infrastructure was often provided by the private sector through turnpike roads or railways, the state has always had an interest, not least because of the role of transport infrastructure in national defense. However, state involvement in both provision and management of infrastructure is for reasons more than this: the economic characteristics of infrastructure involving elements of public good, externality, and natural monopoly imply a state interest. In this chapter we consider how policy toward infrastructure has developed in four main parts. First, we consider the basic economic characteristics of infrastructure in order to define what objectives the state might have for both provision and management. Secondly, we examine the possibility of a self-financing transport infrastructure system; the public utility question. Thirdly, we examine the role of private finance in public infrastructure. Fourthly, we consider the problems associated with the maintenance and operation of infrastructure and how to set efficient regulatory incentives to infrastructure managers or private sector providers.