The impact of user heterogeneity on road franchising

A model is presented for analyzing Pareto-efficient build-operate-transfer toll road contracts. The formulation simultaneously allows maximizing social welfare and private profit when road users vary in their value-of-time (VOT). The failure rate and mean residual functions of the VOT distribution are used to characterize Pareto-efficient solutions. Service quality, measured in terms of the volume-to-capacity ratio, is shown to be better than, identical to, or lower than the socially optimal level depending on the curvature of the mean residual VOT function. The outcomes of various regulatory regimes are examined as well.

► A model is presented for analyzing Pareto-efficient build-operate-transfer toll road contracts. ► Social welfare and private profit are jointly maximized when users vary in their value-of-time. ► Pareto-efficient solutions are characterized according to the value-of-time distribution. ► The volume-to-capacity ratios associated with the Pareto-efficient solutions are examined. ► The outcomes of various regulatory regimes are investigated.