TY - JOUR AU - Engel,Eduardo AU - Fischer,Ronald AU - Galetovic,Alexander TI - Highway Franchising and Real Estate Values JF - National Bureau of Economic Research Working Paper Series VL - No. 8803 PY - 2002 Y2 - February 2002 UR - http://www.nber.org/papers/w8803 L1 - http://www.nber.org/papers/w8803.pdf N1 - Author contact info: Eduardo Engel Yale University Department of Economics P.O. Box 208268 New Haven, CT 06520-8268 Tel: 203/432-5595 Fax: 203/432-5779 E-Mail: eduardo.engel@yale.edu Ronald Fischer Centro de Economia Aplicada (CEA) Departamento de Ingenieria Industrial Universidad de Chile Republica 701 Santiago CHILE E-Mail: rfischer@dii.uchile.cl Alexander Galetovic Fac. Cs. Economicas y Empresariales Universidad de Los Andes Av. San Carlos de Apoquindo 2200 Santiago CHILE E-Mail: alexander@galetovic.cl AB - It has become increasingly common to allocate highway franchises to the bidder that offers to charge the lowest toll. Often, building a highway increases the value of land held by a small group of developers, an effect that is more pronounced with lower tolls. We study the welfare implications of highway franchises that benefit large developers, focusing on the incentives developers have to internalize the effect of the toll they bid on the value of their land. We study how participation by developers in the auction affects equilibrium tolls and welfare. We find that large developers bid more aggressively than construction companies that own no land. As long as land ownership is sufficiently concentrated, allowing developers in the auction leads to lower tolls and higher welfare. Moreover, collusion among developers is socially desirable. We also analyze the case when the franchise holder can charge lower tolls to those buying her land (`toll discrimination'). Relative to uniform tolls, discrimination decreases welfare when land is highly concentrated, but increases welfare otherwise. Finally, we consider the welfare implications of subsidies and bonuses for proposing new highway projects. ER -